Despite the easing of mortgage rates and the continuing rise of the supply of properties on the market, sales of previously occupied U.S. homes dropped this past August, the slowest annual pace in nearly a year.
The National Association of Realtors said this past Thursday that existing home sales dropped 2.5% in August from July and fell 4.2% compared with August last year. According to FactSet, the latest home sales were short of the 3.9 million pace economists were expecting.
Home Prices are on the Rise
Yet, home prices are still increasing annually for the 14th consecutive month, with the national median sales price rising 3.1% from a year earlier to $416,700 – marking the highest median price for August on records dated back to 1999.
“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,” said Lawrence Yun, the NAR’s chief economist.
Changes to Primary Interest Rates
The Federal Reserve announced cutting its primary interest rate for the first time in more than four years this past Wednesday, and Fed officials also signaled that further cuts are expected for 2025 and 2026. These rate cuts aim to, over time, lead to lower borrowing costs on mortgages, as the current average rate on a 30-year home loan fell last week to 6.09%, the weakest since early February 2023, according to mortgage buyer Freddie Mac.
Yet, despite more attractive mortgage rates, August home sales likely declined due to many prospective homebuyers holding out for the Fed to cut rates further.
“So far, those buyers who waited, may be glad that they did,” said Daniele Hale, chief economist at Realtor.com. “Not only have mortgage rates continued to fall into early September, but we’re also nearing a seasonal sweet spot for homebuyers, when competition usually wanes, home prices ease, and time on market tends to grow.”
Existing home sales have been significantly struggling with sales since back in 2022 when mortgage rates began to increase from pandemic-era lows. These sales dropped to a nearly 30-year low last year as the average rate on a 30-year mortgage skyrocketed to a 23-year high of 7.79%. Elevated mortgage rates, home prices hitting historic highs, and a chronic shortage of available homes have pushed away potential homebuyers.
In August, NAR said there were about 1.35 million unsold homes by the end of the month, an increase of 0.7% from July and 22.7% from the exact times last year.
The inventory of available homes translates to a 4.2-month supply when looking at the current sales pace, up from a 3.3-month pace at the end of August last year; however, traditionally, a balanced market between buyers and sellers has a 5- to 60-month supply.
“Maybe the favorable backdrop — lower mortgage rates, more inventory — will have an impact in coming months,” Yun said.
An Unachievable Goal for Many
Unfortunately, homeownership is still out of reach for many Americans after years of increasing home prices. The median U.S. home sales price climbed to 49% over the past five years, while Americans’ wages only grew by 25% in the same period.
Potential home buyers who could afford the big-ticket purchase last month benefited from a modest pickup in available properties on the market. This boost in inventory may be attributed to homes taking longer to sell, yet they are still being snapped up relatively quickly.
Yet, August showed that homes typically stayed on the market for 26 days a month before they were sold, an increase from 20 days a year earlier. August also saw fewer homes receive multiple offers, with roughly 20% of the homes sold in the month bought for more than their original list price, a drop of 31% from August last year.
