Existing home sales continued to fall in August, as homebuyer demand cooled further as a result of the Federal Reserve’s inflation-busting policy.
The seasonally adjusted sales rate for existing homes fell 0.4% month over month in August to a rate of 4.80 million, according to a report from the National Association of Realtors (NAR) released Wednesday.
This is seventh consecutive month of declines. On a yearly basis, existing home sales are down 19.9%.
“The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve’s interest rate policy changes,” Lawrence Yun, NAR’s chief economist, said in a statement. “The softness in home sales reflects this year’s escalating mortgage rates. Nonetheless, homeowners are doing well with near nonexistent distressed property sales and home prices still higher than a year ago.”
With the Federal Reserve expected to raise interest rates by 75-basis points this week, the near-term future for the housing market appears gloomy. Higher mortgage rates are discouraging many potential home sellers from listing their property.
In August, NAR found that the inventory of existing homes dropped 1.5% month over month to 1.28 million or the equivalent of 3.2 months of supply at the current sales pace.
“Inventory will remain tight in the coming months and even for the next couple of years,” Yun said. “Some homeowners are unwilling to trade up or trade down after locking in historically-low mortgage rates in recent years, increasing the need for more new-home construction to boost supply.”
According to FHFA data, 85% of mortgage borrowers in the first quarter of 2022 had an interest rate less than or equal to 5%. And 65% had an interest rate at 4% or lower.
Also potentially putting off some would-be sellers are the still rising home prices. The median existing home sales price rose 7.7% year over year in August to $389,500, marking 126 consecutive months of year-over-year price increases. However, August marked the second month in a row that the median sales price retracted after reaching a record high of $413,800 in June, which NAR said reflects the usual seasonal trend of prices declining after peaking in early summer.
The report found that year over year price growth was strongest in Miami (+33.4%), Memphis (+25.8%) and Milwaukee (+25.0%), while Phoenix (+30.9 percentage points), Austin (+24.8 percentage points) and Las Vegas (+24.4 percentage points), all recorded the highest increase in the share of homes that had their prices reduced compared to a year prior.
Regionally, existing home sales rose in the Northeast (1.6%) and the West (1.1%), while remaining the same month over month in the South and dropping 3.3% in the Midwest. Compared to a year ago, every region saw a decrease in existing home sales, with the West seeing the largest decrease at 29.0%.
Existing home sales fell in all price categories in August, but were more pronounced on the lower end. Sales of homes priced between $250,000 and $500,000 were down 14% from last August, while sales of those priced between $750,000 and $1 million fell 3%.