In August, the real estate market experienced a notable downturn as sales of previously owned homes decreased by 2.5% from July, reaching an annualized rate of approximately 3.86 million units, as reported by the National Association of Realtors (NAR). This figure is slightly below analysts’ expectations and represents a significant 4.2% drop compared to the same month in 2022. This decline marks the third consecutive month during which sales have remained under the critical threshold of 4 million units annually, indicating a worrying trend in the housing market.
The figures quoted are influenced by contract signings typically made in late June and July, a period when mortgage rates had begun to slightly decline but were still relatively high. For example, in mid-June, the average rate on a 30-year fixed mortgage was recorded at just over 7%, gradually decreasing to around 6.7% by the end of July. These dynamics reveal that while lower mortgage rates could encourage future home-buying, the existing sales figures do not yet reflect these favorable conditions.
Lawrence Yun, NAR’s chief economist, offers a glimmer of optimism amidst the disappointing sales numbers, suggesting that the combination of declining mortgage rates and a slight increase in housing inventory could create a conducive environment for future sales growth. He emphasizes that the home-buying journey typically spans several months, indicating that the effects of changing mortgage rates may not be immediately apparent in the sales data.
Yun notes that the current inventory of homes for sale stood at 1.35 million units at the end of August, marking a minor uptick of 0.7% from the previous month and a more substantial 22.7% increase year over year. While this increase is a positive sign, it still reflects a constrained supply in relation to demand, quantified at a 4.2-month supply. This discrepancy signals that a balanced market—defined as a 6-month supply—has not yet been achieved.
Despite the rise in inventory, the housing market remains sensitive to supply constraints, particularly in specific regions like the Northeast where competition for available homes continues to favor sellers. This imbalance exerts upward pressure on home prices, with the median price of existing homes sold in August hitting $416,700. This figure represents a 3.1% increase from the same month in 2022, marking the highest August price recorded to date.
Interestingly, the increase in median prices may not reflect the broader market trend, as sales figures indicate that while home prices above $750,000 are rising, sales for homes priced under $500,000 have experienced a decline. The challenging market conditions are evident in the statistics regarding first-time homebuyers, who constituted only 26% of sales in August—a significant decline that mirrors the all-time low recorded in November 2021.
In addition to the trends in first-time buyers, cash transactions composed 26% of all sales, reflecting a slight decrease from the previous year but still indicating a historically high level of all-cash sales in the market. Such sales often indicate the ability of buyers to navigate the housing market without reliance on financing, a privilege that not all buyers possess especially in a turbulent economy where standards for lending are becoming more stringent.
Encouragingly, mortgage rates have continued their downward trajectory into September, with the average 30-year fixed mortgage now reported at 6.15%, the lowest level seen in nearly two years. This development could play a critical role in revitalizing the market, as potential buyers may be more inclined to pursue homeownership as rates normalize further.
The real estate landscape remains intricate, characterized by falling sales, fluctuating mortgage rates, and uneven inventory levels. While experts foresee potential improvements due to declining rates and increasing inventory, the long-term health of the housing market will depend significantly on how quickly these factors can motivate buyers to enter the market amidst ongoing price pressures and affordability challenges. As we move forward, it will be essential to closely monitor these trends to gauge the market’s trajectory in the months to come.