In August, there was a surprising decline in U.S. existing home sales. Contrary to what many analysts had anticipated, the number of homes sold decreased by 0.7%, adjusting to an annual rate of 4.04 million units. Interestingly, this decrease coincided with a hike in house prices. This intertwining of reduced sales and higher prices is a fascinating phenomenon worth exploring further.
Impact of Mortgage Rates
One of the most significant factors affecting the recent housing trends appears to be the increase in mortgage rates. Before we witnessed the dip in August’s home sales, contracts that likely impacted these statistics were signed in July. During this period, mortgage rates for the 30-year fixed mortgage had risen beyond the 7% threshold.
The resurgence in mortgage rates not only affects the purchasing capacity of potential homeowners but also influences the strategies of real estate investors.
Regional Sales Variances
America’s vast expanse means that real estate trends can be different across regions. While sales diminished in the South and West, there was an uptick in the Midwest. However, the Northeast witnessed no changes.
A Historical Perspective
Zooming out to see the bigger picture, home resales – a significant portion of U.S. housing sales – plunged by 15.3% year-on-year in August. The housing market, which had previously shown promise of stabilization, particularly after the Federal Reserve’s assertive monetary policies, seems to be back on shaky ground. This waning confidence is further supported by the fact that homebuilder sentiment reached a five-month low in September. Moreover, housing starts in August receded to numbers last observed in mid-2020.
The Wider Economic Landscape
The surge in mortgage rates is running parallel to the rise in U.S. Treasury yields. One of the drivers of this trend is the concern that escalating oil prices might obstruct the Federal Reserve’s endeavours to combat inflation.
Recently, the U.S. central bank kept its benchmark overnight interest rate steady, falling between 5.25%-5.50%. Nevertheless, the bank’s stiffer monetary approach hints at another potential hike by the end of the year, with a more rigid stance expected through 2024.
Current Property Market Indicators
As of August, the inventory of previously owned homes was pegged at 1.1 million – a decline of 14.1% from the previous year. Given the sales pace in August, the current housing inventory would last about 3.3 months, a slight rise from 3.2 months the year before. For reference, a four-to-seven-month supply is often seen as a balanced equation between demand and supply.
Moreover, the median price of existing houses has been on an upward trajectory, marking its third consecutive month surpassing the $400,000 mark.
Expert Insights
Lawrence Yun, the chief economist at the National Association of Realtors (NAR), offered a pertinent observation, noting, “Home prices continue to march higher despite lower home sales.” Yun further emphasized the need for an almost doubled supply to stabilize home price increments.
Additional Market Data
- Properties, on average, were listed for 20 days in August, a rise from 16 days the previous year.
- In August, 72% of homes were sold within a month of being listed.
- First-time buyers constituted 29% of sales, consistent with the previous year’s data.
- All-cash sales represented 27% of transactions, a slight increase from 24% the year before.
- Distressed sales, encompassing foreclosures, stood at 1%, remaining consistent with July’s statistics.
Conclusion: What Does This Mean for Potential Investors?
Navigating the property market requires a keen understanding of both current trends and historical data. The recent decrease in home sales coupled with rising prices underscores the market’s complexity.