Rosalind Evans
August saw a larger-than-expected dip in home sales, marking a continued slowdown in the housing market. According to the National Association of Realtors (NAR), sales of previously owned homes fell by 2.5% from July, reaching an annualized rate of 3.86 million units. This decline, although slight, reflects ongoing challenges in the market, driven by rising prices and limited inventory.
Declining Home Sales in August
Sales in August were notably lower than expected, falling 4.2% compared to the same month in 2023. The drop also marks the third consecutive month where annualized home sales remained below the 4 million mark. This slowdown is attributed to various factors, including mortgage rates and inventory levels. Lawrence Yun, NAR’s chief economist, commented, “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.”
The Role of Mortgage Rates
The dip in home sales is partly linked to mortgage rate fluctuations. In mid-June, the average rate for a 30-year fixed loan was slightly above 7%, but by the end of July, it had decreased to 6.7%. Mortgage rates have continued to fall, reaching 6.15% in September, the lowest rate in roughly two years. This steady decline is expected to fuel future home sales, but the impact of higher rates in June and July slowed the market over the summer.
Slight Increase in Housing Inventory
Despite falling sales, there is a silver lining, with inventory slightly improving. At the end of August, there were 1.35 million homes available for sale, representing a 0.7% increase from July and a 22.7% rise compared to the previous year. However, the inventory only represents a 4.2-month supply, falling short of the balanced 6-month supply needed to level the playing field between buyers and sellers.
Yun noted the significance of this change: “The rise in inventory — and, more technically, the accompanying months’ supply — implies home buyers are in a much-improved position to find the right home and at more favorable prices. However, in areas where supply remains limited, like many markets in the Northeast, sellers still appear to hold the upper hand.”
Prices Continue to Set Records
The housing market’s tight supply has continued to drive up prices. In August, the median price of an existing home reached a record $416,700, up 3.1% from the same period in 2023. This increase is partly influenced by the higher-end homes selling, as sales of homes priced above $750,000 surged while those under $500,000 declined.
The ongoing price hikes make it challenging for first-time homebuyers, who made up just 26% of the market in August, matching the all-time low from November 2021. All-cash sales remained high at 26%, slightly down from a year ago but still significant historically.
Outlook for Future Sales
The combination of falling mortgage rates and increasing inventory offers hope for a rebound in home sales in the coming months. While current market conditions favor sellers, especially in regions with tighter supply, improved affordability due to lower rates may provide more opportunities for buyers.
Yun said, “The home-buying process typically takes several months, from the initial search to getting the house keys. We are seeing the market shift, and lower rates will likely boost activity as we head into the fall.”
While August home sales dropped, the future looks brighter with improving conditions that may encourage more buyers to re-enter the market. We could see a more balanced dynamic between buyers and sellers in the coming months as mortgage rates decline and inventory rises.
