The American housing market is navigating choppy waters as existing home sales faced a 0.7 percent decline in August, according to the latest data from the National Association of Realtors (NAR). This trend reflects the challenges posed by rising mortgage rates and limited supply.
Existing home sales reached an annual rate of 4.04 million units last month, adjusted for seasonality. This figure fell below analyst expectations and marked a substantial 15.3 percent drop from the same period last year.
The primary driving force behind this decline is the upward trajectory of mortgage rates. As interest rates continue to climb, the cost of homeownership has risen, deterring potential buyers and dissuading existing homeowners from listing their properties for sale, especially after securing lower interest rates in previous years.
Lawrence Yun, the Chief Economist at NAR, offered insights into the situation, emphasizing the short-term impact of mortgage rate changes and the long-term influence of job gains. Despite the slowdown in sales, Yun noted that home prices continued to rise, maintaining levels last witnessed in January.
He also stressed the critical need for a substantial increase in housing supply to stabilize home prices. Yun stated, “Supply needs to essentially double to moderate home price gains.”
In August, the median price for an existing US home reached $407,100, representing a 3.9 percent increase from the same month in the previous year.
Meanwhile, the total housing inventory also contracted from July levels, suggesting potential challenges in the months ahead. Economists Ian Shepherdson and Kieran Clancy of Pantheon Macroeconomics expressed concerns about a possible “renewed drop in sales” following a recent decline in mortgage applications, without pinpointing a definitive bottom for these applications.
The widely-followed 30-year fixed-rate mortgage averaged approximately 7.2 percent as of September 14, according to Freddie Mac. This rate was substantially higher than the 6 percent observed a year ago and a notable departure from the 2.9 percent rate recorded in September 2021.
Analysts anticipate a continuation of the downward trend in sales in the near future. The Pantheon report concluded, “A genuine recovery is contingent on a substantial reduction in mortgage rates.”
These challenges underscore the intricate interplay between interest rates, housing supply, and the broader economic context. As industry experts and policymakers closely monitor these dynamics, prospective buyers and sellers remain vigilant, adjusting their strategies in response to market conditions.
Photo Source: Google
By: Montel Kamau
Serrari Financial Analyst
24th September, 2023
