US Home Sales Hit 10-Month Low Amid Affordability Issues

Sales of existing US homes fell in August, facing affordability challenges, despite a recent decline in mortgage rates. Explore the latest trends.

In August, the sales of existing homes in the United States plummeted to a ten-month nadir, primarily due to ongoing affordability challenges, despite a recent dip in mortgage rates. According to data released by the National Association of Realtors (NAR) on Thursday, contract closings experienced a 2.5% decline from the previous month, settling at an annualized rate of 3.86 million. This figure fell short of the median forecast posited by economists surveyed by Bloomberg, highlighting one of concerning trends in real estate market.

The housing sector is now pinning its hopes on a series of interest rate reductions by the Federal Reserve, which commenced on Wednesday with an unusually substantial 50-basis-point cut. Such a move is anticipated to invigorate demand, particularly among first-time buyers who, as per NAR statistics, constituted a record-low percentage of August transactions. The recent decrease in mortgage rates, which have dipped to their lowest levels since September 2022, has sparked a surge in applications for both home purchases and refinancing, as reported by the Mortgage Bankers Association.

Interestingly, the resale inventory has increased for the eighth consecutive month, with the supply of existing homes rising by 0.7% to 1.35 million units—marking the highest level since October 2020. However, this figure remains significantly below the pre-pandemic average of 1.9 million homes. At the current sales velocity, this inventory equates to a supply of 4.2 months. Meanwhile, the median sales price has ascended by 3.1% over the past year, reaching $416,700—an all-time high for August according to NAR data. Over the last year, existing home sales have averaged an annualized pace of 4 million, a stark contrast to the 5.3 million rate observed in the year preceding the pandemic.

A notable impediment to sales has been the so-called "lock-in effect," wherein potential sellers are reluctant to list their homes, fearing the loss of their sub-3% mortgage rates. This phenomenon has reportedly curtailed sales by approximately one million homes annually. Nevertheless, the recent declines in borrowing costs suggest that homeowners with a monthly mortgage payment of $2,000 could potentially afford a property priced $50,000 higher.

In August, NAR's data indicated that 60% of homes sold were on the market for less than a month, a slight decrease from 62% in July. Additionally, 20% of homes sold above the list price, down from 24% the previous month. Properties lingered on the market for an average of 26 days last month, compared to 24 days in July.

It is essential to note that existing home sales constitute the majority of total U.S. housing transactions and are calculated upon contract closure. On Wednesday, the government is expected to release figures for new home sales in August, which are based on contract signings, providing further insight into the current state of the housing market.