Improving mortgage rates and inventory fail to spark a recovery in sales
Existing home sales fell again in August, disappointing economists who had been anticipating a rebound in homebuying amid improving mortgage rates and increased inventory.
Sales fell 2.5% from July, bringing the seasonally adjusted annual rate to 3.86 million, according to the National Association of Realtors (NAR). This represents a 4.2% decline compared to August 2023, when existing home sales stood at 4.03 million.
“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,” NAR chief economist Lawrence Yun said in the report. “The home-buying process, from the initial search to getting the house keys, typically takes several months.”
Freddie Mac reported that the average 30-year fixed-rate mortgage was 6.2% as of mid-September, down from 6.35% the previous week and 7.18% a year ago. This slight improvement has also led Odeta Kushi, deputy chief economist of First American, to believe that more buyers may return to the market in the coming months
“Incremental improvements in mortgage rates will spur some buyers off the sidelines and entice more sellers to consider parting with their super-low mortgage rates,” Kushi said in an existing sales outlook report. “But, even if rates dip to 6%, fewer than 30% of renters could afford the median-priced home as of July.
“Moreover, the bulk of existing homeowners will still be rate locked-in. While two months of increasing existing-home sales does not yet make a trend, it signals clear progress, and there’s reason for optimism in the months ahead.”
Housing inventory continued to improve, rising 0.7% from July to 1.35 million units in August, and up 22.7% from one year ago. Unsold inventory now sits at a 4.2-month supply, up from 4.1 months in July and 3.3 months in August 2023.
Yun noted that this inventory rise puts homebuyers in a better position to find homes at more favorable prices, but some regions, like the Northeast, still have limited supply.
“In areas where supply remains limited, sellers still appear to hold the upper hand,” he added.
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Affordability remains the biggest challenge for the housing market, with many potential buyers waiting for further price reductions or lower mortgage rates.
The median price of an existing home rose to $416,700 in August, a 3.1% increase from the $404,200 recorded in the same month last year. All four US regions posted price increases despite sales slowdowns.
Fannie Mae’s Economic and Strategic Research (ESR) Group believes this trend will continue for the foreseeable future.
“We think it’s likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating additional declines in mortgage rates given expectations that the Fed will lower the federal funds target rate,” the ESR Group wrote in a report.
“Others may be waiting for household incomes to improve further to offset some of the recent home price growth, or they may be thinking that future supply growth will ease affordability. Regardless of the lever, we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995.”
“With the Fed cut now officially on the books, we'll have to wait and see if fall will turn out to be a hotter time for home sales,” added Kate Wood, home and mortgage expert at NerdWallet.
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