Existing home sales decreased yet again in August due to high home prices and low inventory locking some potential buyers out of the market, according to a report released today by the National Association of Realtors.
In fact, the Northeast region was the only area of the U.S. to see an increase in closings in August, according to the report. Current inventory in the Northeast is better off than other parts of the country.
Existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 0.9% to a seasonally adjusted rate of 5.33 million. This is down from a downwardly-revised 5.38 million in July, and marks the second-lowest pace of 2016.
This clearly came as a shock to some experts, who expected an increase in sales for August.
“Existing home sales are projected to edge slightly higher in August given the growth in pending home sales in the prior month,” said David Berson, previous Fannie Mae chief economist for over 20 years. “Sales continue to trend upward in response to solid job growth, better demographics, low mortgage rates, and faster income gains.”
Pending home sales increased in July up to the highest reading in over a decade, according to the last report from NAR.
However, existing home sales are still up 0.8% from last year’s 5.29 million sales.
“Healthy labor markets in most the country should be creating a sustained demand for home purchases,” NAR Chief Economist Lawrence Yun said. “However, there’s no question that after peaking in June, sales in a majority of the country have inched backwards because inventory isn’t picking up to tame price growth and replace what’s being quickly sold.”
“Hopes of a meaningful sales breakthrough as a result of this summer’s historically low mortgage rates failed to materialize because supply and affordability restrictions continue to keep too many would-be buyers on the sidelines,” Yun said.
Actually, the median existing-home price for all housing types increased 5.1% annually in August to $240,200. This is up from last year’s $228,500, and the 54th consecutive month of year-over-year increases.
Total housing inventory decreased 3.3% monthly to 2.04 million existing homes available for sale. Inventory fell 10.1% from last year, marking the 15th consecutive month of declines. Unsold inventory now rests at a 4.6-month supply, down from the 4.7-month supply in July.
“Existing inventory in August hit another record low when controlling for seasonality and household formation, down again from a record setting July,” Trulia Chief Economist Ralph McLaughlin said.
“Inventory woes continue to introduce supply gridlock for homebuyers,” McLaughlin said. “Those who want to sell their home might not do so because finding another home is difficult. This introduces a first-mover problem into the home buying landscape.”
The share of first-time buyers decreased slightly from July’s share of 32% of homebuyers to 31% in August. This is still up from 2015’s average 30%.
“It’s very concerning to see that inventory conditions not only show no signs of improving but have actually worsened in recent months from their already suppressed levels a year ago,” Yun said.
“While recent data from the U.S. Census Bureau shows that household incomes rose strongly last year, home prices are still outpacing incomes in many metro areas because of the persistent shortage of new and existing homes for sale,” he said. “Without more supply, the U.S. homeownership rate will remain near 50-year lows.”
The number of days on the market, while unchanged from July, decreased significantly from last year’s 47 days to 36 days in August.
“Given the inventory shortages in most markets, new listings at affordable prices are receiving multiple offers and going under contract almost immediately upon becoming available,” said NAR President Tom Salomone, broker-owner of Real Estate II. “Home shoppers serious about buying need to be ready with a pre-approval.”
Privately-owned housing starts in August decreased to a seasonally adjusted annual rate of 1,142,000, according to a report released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. This is 5.8% below the revised July estimate of 1,212,000, but is 0.9% above the August 2015 rate of 1,132,000.
“Although growth in new construction has added some much needed supply to the market in recent months, a lot more will need to be built in order to make dents in inventory numbers and ease the pressure on home shoppers,” Zillow Chief Economist Svenja Gudell said.