Existing home sales decreased for the fourth time in the past five months to a one-year low as housing supply continues to hold back sales, according to the latest report from the National Association of Realtors. And it looks there's no light at the end of the tunnel either.
Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 1.7% to a seasonally adjusted annual rate of 5.35 million sales in August. This is down from 5.44 million in July, but up 0.2% from last August. This decrease also marks the lowest point in existing home sales since August 2016.
“Steady employment gains, slowly rising incomes and lower mortgage rates generated sustained buyer interest all summer long, but unfortunately, not more home sales,” NAR Chief Economist Lawrence Yun said.
“What’s ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it’s putting on prices in several parts of the country,” Yun said. “Sales have been unable to break out because there are simply not enough homes for sale.”
He explained that some of this decrease can be attributed to the recent hurricanes, Irma and Harvey, which devastated parts of Florida and Texas.
“Some of the South region’s decline in closings can be attributed to the devastation Hurricane Harvey caused to the greater Houston area,” Yun said. “Sales will be impacted the rest of the year in Houston, as well as in the most severely affected areas in Florida from Hurricane Irma. However, nearly all of the lost activity will likely show up in 2018.”
However, one expert argued this data is not reflective of the hurricanes as they likely would not have had time to affect the data for August.
“Another limp month of existing home sales in August, the fourth monthly decline in five months and on the heels of a disappointing July, marks an unimpressive end to the what should have been a red-hot spring/summer selling season,” Zillow Chief Economist Svenja Gudell said. “While there may be some speculation the drop was driven by the effects of Hurricane Harvey, these data represent closed sales likely already in the process well before the hurricane hit, so it is likely too soon to see the effects of the storm.”
But whether or not the hurricanes impacted the data in the August report, one economist explained it will undoubtedly bring home sales down for the next few months.
“Hurricanes Harvey and Irma will no doubt have an impact on existing home sales over the next several months, especially since the South accounted for 41% of existing home sales in 2016,” Trulia Senior Economist Cheryl Young said.
The median existing home prices for all housing types increased 5.6% from last year to $253,500. This marks the 66th consecutive annual gain in home prices.
One expert explained that despite the home price increases, mortgage rates remain low, helping to keep homebuying more affordable.
“Despite the lack of homes available to choose from and the subsequent increases in home prices, low mortgage rates continue to help keep monthly payments in check,” said Bill Banfield, Quicken Loans executive vice president of capital markets. “Entry-level buyers should find some credit easing this year helping them get into a home.”
Total housing inventory continues to fall, dropping 2.1% from July to 1.88 million existing homes available for sale. This represents a drop of 6.5% from last year’s 2.01 million homes, and has now fallen year-over-year for 27 consecutive months. Unsold inventory rests at a 4.2-month supply at the current sales pace, down from 4.5 months last year.
“Demand is high, but the lack of supply is pushing up prices, and that's causing ripple effects throughout the economy,” said Robert Frick, Navy Federal Credit Union corporate economist.
“Together with high rents, many people who want a new, higher-paying job are finding that moving to a new city is too expensive,” Frick said. “And low inventory and higher prices is dropping the number of first-time home buyers. They were just 31% of sales in August, down from 33% in July.”
However, a new study from Trulia shows the best time of year for first-time homebuyers to enter the housing market may be yet to come. The report shows housing inventory for starter homes reaches its peak levels in 70 of the top 100 largest markets in the months of October through December.