Sales of previously occupied homes slowed for the seventh month in a row in August, as increasingly high mortgage rates and rising prices made homebuying less affordable, and cooled the once red-hot housing market.
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The National Association of Realtors said Wednesday that current home sales fell 0.4 percent from July last month to a seasonally adjusted annual rate of 4.80 million. According to FactSet, this is more than economists expected.
Sales fell 19.9% from August last year, and are now at the slowest annual pace since May 2020, nearing the start of the pandemic.
The national median home value jumped 7.7% in August from a year earlier to $389,500. As the housing market has cooled, home prices are rising at a more moderate pace after rising nearly 20% annually earlier this year. Before the pandemic, the average home price was rising about 5% annually.
“Rising mortgage rates have clearly disrupted the housing market,” said Lawrence Yoon, NAR’s chief economist.
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August’s sales report is the latest evidence that the housing market, a key driver of economic growth, has been slowing at an alarming pace in recent years as homebuyers grapple with the highest mortgage rates in more than a decade, as well as hovering inflation. Close to a four-decade high.
According to mortgage buyer Freddie Mac, the average rate on a 30-year home loan rose to 6.02% last week, moving above 6% for the first time since 2008. The rate averaged 2.86% a year ago.
The last time the long-term average rate was so high was in November 2008, after the collapse of the housing market that triggered the Great Recession.
Mortgage rates were eased in July after climbing in June, which may have helped motivate home buyers last month while limiting the decline in sales. Recently, however, rates have been rising again along with the 10-year Treasury yield, which affects home loan rates. The 10-year yield traded at its highest level since 2011 on Tuesday, reflecting expectations of a further hike in interest rates by the Federal Reserve to tame inflation.
According to an analysis by real estate information company Zillow, higher home prices and mortgage rates have pushed mortgage payments on a typical home from $897 to $1,643 per month, an 83% increase over the past three years.
Rise in home loan rates not only make homes less affordable, but they also discourage homeowners, who had locked in ultra-low rates over the years, from buying a new home. This, in turn, may limit the number of homes available for sale.
“This lock-in effect continues to impact inventory and I think it will continue to impact inventory going forward,” Yoon said.
According to Redfin, some 85% of American homeowners with mortgages now have the rate less than 6%. The disparity gives these homeowners less incentive to sell and buy another home, as taking on a higher mortgage rate will mean paying more over the life of the loan and also a larger monthly payment.
In the four weeks ended September 11, home listings fell 19% compared to a year ago, the biggest drop since May 2020, the real estate brokerage found.
NAR said some 1.28 million homes were in the market at the end of August, up 1.5% from July and flat against August last year.
On average, homes sold in just 16 days of market entry last month, up from 14 days in July. Before the pandemic, homes were typically sold for more than 30 days after being listed for sale.
At current sales pace, the level of properties for sale equates to a 3.2-month supply, Yoon said. This is unchanged from July and is higher than the 2.6-month supply in August last year. A more balanced market between buyers and sellers has 5-6 months of supply.