Sales of previously owned homes took a significant hit in August, with a 2.5% drop from July, according to the National Association of Realtors. This decline brought the seasonally adjusted annualized rate to 3.86 million units, slightly below analysts’ expectations. Compared to August 2023, sales were down by 4.2%, marking the third consecutive month of sales below the 4 million mark.
The recent decline in home sales can be attributed to the timeline of closings, with contracts likely signed in late June and July when mortgage rates were starting to decrease but were not as low as they are currently. Mortgage rates on the 30-year fixed loan averaged slightly over 7% in mid-June, gradually falling to 6.7% by the end of July, as reported by Mortgage News Daily.
Despite the disappointing sales figures, Lawrence Yun, NAR’s chief economist, remains optimistic about the future. He stated, “Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months.”
Inventory and Supply
The inventory of homes for sale saw a slight improvement in August, with 1.35 million units available by the end of the month. This marked a 0.7% increase from July and a significant 22.7% growth compared to the previous year. However, the supply remains limited, with just a 4.2-month supply available. A balanced market typically sees a 6-month supply, indicating that sellers still hold the upper hand in many markets.
Yun emphasized the importance of inventory levels in the housing market, stating, “The rise in inventory — and, more technically, the accompanying months’ supply — implies home buyers are in a much-improved position to find the right home and at more favorable prices.”
Impact on Prices
The tight supply of homes continues to put pressure on prices, with the median price of an existing home reaching a record high of $416,700 in August. This marked a 3.1% increase from the same month in 2023. It’s important to note that the median price reflects what was selling in August, with significant sales growth observed in homes priced above $750,000 while declining for properties below $500,000.
First-time buyers accounted for just 26% of August sales, matching the all-time low from November 2021. Additionally, all-cash sales remained high at 26%, although slightly lower than the previous year. These factors reflect the challenges faced by potential buyers in a market characterized by high prices and limited inventory.
Market Outlook
Mortgage rates continued to decline in August and September, with the 30-year fixed rate now at 6.15%, the lowest in approximately two years. This reduction in rates could potentially stimulate demand and drive sales in the coming months, especially when coupled with the increasing inventory levels.
Overall, while home sales experienced a setback in August, the combination of lower mortgage rates and improving inventory presents a positive outlook for the housing market. As buyers gain more options and potentially more favorable prices, the market may see a shift towards a more balanced state, benefiting both buyers and sellers alike.
