Existing home sales fell for the seventh straight month, but the “very mild” decrease at the end of a busy summer season is going to have some feeling relieved, as real estate professionals look anxiously ahead at the slower winter months with an eye on volatile mortgage rates.
At a seasonally adjusted annual rate of 4.80 million units, sales fell 0.4% from July to August. Sales are still down almost 20% year-over-year, and on pace to be significantly lower than 2019, before the pandemic.
But the fact that there wasn’t an acceleration in the decline is potentially good news, according to National Association of REALTORS® (NAR) Chief Economist Lawrence Yun.
“Maybe it will stabilize at this range, assuming that mortgage rates stabilize,” he said. “All bets are off if mortgage rates continue to trend higher.”
The pace of sales is roughly where it was in June 2020, right as the market began recovering from the initial shock of COVID. Excluding that pandemic blip, sales are about where they were in 2015.
From June to July, existing home sales fell an alarming 5.9%, with many worrying that the housing pullback could ramp into a full-on panic as rates rose and consumer sentiment plummeted. The approximately 6% drop in two months is very unusual, with Yun telling reporters on a conference call that he couldn’t recall another drop that large since at least the Great Recession.
“It may never have occurred,” he said.
But the market continues to defy the worst fears and forecasts, with some other positive data coming out recently, even as there is still a clear drop-off from recent pandemic highs, with some areas hit harder than others.
“I would certainly expect some markets probably will experience some price decline,” Yun said. “Half of the market is seeing some decline, and the other half of the market is seeing some increases, with the median, no change…one third of the country or so will maybe actually end in the negative territory.”
Yun told reporters he would be revising his forecast for full-year sales downward for 2022. He added that he would also re-check his forecast on prices, after a strong first-half of the year has faded in terms of price growth.
“The primary reason for the forecast change is that mortgage rates always have the biggest impact on home sales,” Yun said. “Furthermore, this change in mortgage rates from 3% to 6%…this has not really happened for quite some time. You have to go back to Paul Volcker days.”
Nationally, the average home price remains elevated, at $389,500—a record for the month of August, according to Yun, and up 7.7% from a year ago. Inventory remains low as well with 1.2 million homes for sale at the end of August, down 1.5% from last month, which is good news for prices and home equity but continues to depress sales and hamper buyers—particularly in lower income brackets.
First-time buyers remained flat, slightly below last year’s average at 29% of all buyers. Sales of homes priced between $100,000 and $250,000 were down 26%, while sales in the $750,000 to $1 million range were only down 3%.
Yun said the fact that inventory is the same as it was a year ago is a consequence of homeowners locked into low interest rates.
“Either they bought at 3% or they refinanced at 3% and now with mortgage rates at 6%, they do not want to give up that 3%,” Yun explained. “That lock-in effect is impacting inventory, and I think it will continue to impact inventory going forward.”
A $300,000 mortgage at 3% translates to a monthly payment of about $1,265, according to Yun. With interest rates as they are now, that same loan would have to be about $210,000 to get the same monthly payment.
The current inventory translates to 3.2 months supply of homes, slightly up from a year ago. Because of the falling sales, Yun said the market is about four or five months from “normal” and an “equilibrium point of balanced market conditions” at this pace.
Regionally, existing home sales in the Northeast grew 1.6% from July to an annual rate of 630,000 in August, down 13.7% from August 2021. Sales in the Midwest fell 3.3% from the prior month to an annual rate of 1,160,000 in August, retreating 15.9% from August 2021. Sales in the South were identical to July but down 19.3% from one year ago. Existing-home sales in the West expanded 1.1% compared to last month to an annual rate of 880,000 in August, down 29% from this time last year.