Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — fell 19.9% from a year ago and were down 0.4% from July, according to a report from the National Association of Realtors.
August sales were at their weakest level since May 2020, which is an anomaly since that was in the early days of the pandemic lockdown. That aside, last month’s sales were the weakest since November 2015.
A year-over-year sales decline was seen across all price categories, with steeper declines at the lower end, and across all regions, falling the most in the West where the affordability challenge is most severe.
Home prices continued to rise during the month, although this was the lowest year-over-year increase since June 2020. The median home price was $389,500 in August, up 7.7% from a year earlier, according to the report. That’s down from a record high of $413,800 in June. The price increase marks more than a decade of year-over-year monthly gains.
“The housing sector is the most sensitive and experiences the most immediate impact from Federal Reserve interest rate changes,” said Lawrence Yun, NAR’s chief economist. “The softness in home sales reflects rising mortgage rates this year.”
Inventory remains tight
With sales down only modestly from July, the market slowdown could stabilize, Yun said, assuming mortgage rates stabilize.
“But all bets are off if mortgage rates rise,” Yun said. “Homeowners who might normally move — because of a new job or another child or a different school district — may stay in their current home because they love their low interest rates that are they’ve been locked in for the past two and a half years.”
The “staying put” effect keeps the inventory of homes for sale tight. While it may seem like a drop in sales means an excess of homes on the market, fewer people are putting their homes on the market. And new listings are really fast, moving from listing to contract in 16 days.
The inventory of homes for sale at the end of August was down 1.5% from July and unchanged from last year, at 1,280,000 units. And houses are still selling fast. At the current pace of sales, it will take 3.2 months to sell off all that inventory, the same as July and up from 2.6 months a year, because there are fewer sales. A balanced market, Yun said, is closer to a 4- to 5-month supply.
“Inventory will remain tight in the coming months and even the next two years, increasing the need for more new-home construction to boost supply,” Yun said.
Home prices are cooling
The market typically sees seasonal declines of about 1% a month in home prices during the summer, but this year the monthly declines have been larger — down 3.6% in July from June, and a 2.4% decrease in August from June, although nationally. house prices are still higher than a year ago.
Some local markets may be seeing year-over-year declines, Yun said.
But with the rising cost to finance a home, buyers have to look to lower priced homes to keep payments affordable.
If you bought a $300,000 home last year with an interest rate of 3%, the monthly payment would be $1,265, Yun said. To maintain the same monthly payment, they would have to look at a home priced 30% less now.
“That doesn’t appeal to a lot of buyers,” he said.
In August, first-time buyers were responsible for 29% of sales. That was both last month and a year ago.
“The number of first-time buyers is not going up,” Yun said. “The share should be above 30% or closer to 40%. But first-time buyers are really struggling, given the current affordability challenges.”