LOS ANGELES – Sales of previously occupied U.S. homes fell in August to the slowest annual pace in nearly a year even as mortgage rates eased and the supply of properties on the market continued to rise.
Existing home sales fell 2.5% last month, from July, to a seasonally adjusted annual rate of 3.86 million, the National Association of Realtors said Thursday.
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Sales fell 4.2% compared with August last year. The latest home sales were short of the 3.9 million pace economists were expecting, according to FactSet.
Home prices increased on an annual basis for the 14th consecutive month. The national median sales price rose 3.1% from a year earlier to $416,700. That's the highest median price for the month of August on records going back to 1999.
“Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said Lawrence Yun, the NAR's chief economist.
The Federal Reserve cut its main interest rate for the first time in more than four years Wednesday. Fed officials also signaled they expect further cuts this year and in 2025 and 2026. The rate cuts should, over time, lead to lower borrowing costs on mortgages.
Mortgage rates have been mostly easing since July as signs of waning inflation and a cooling job market raised expectations of a Fed cut. The average rate on a 30-year home loan fell this week to 6.09%, the lowest level since early February 2023, according to mortgage buyer Freddie Mac.
Despite more attractive mortgage rates, home sales likely declined last month in part because many prospective homebuyers were holding out for the Fed to cut rates.
“So far, those buyers who waited, may be glad that they did,” said Daniele Hale, chief economist at Realtor.com. “Not only have mortgage rates continued to fall into early September, but we’re also nearing a seasonal sweet spot for homebuyers, when competition usually wanes, home prices ease, and time on market tends to grow.”
Economists are generally projecting that the average rate on a 30-year mortgage will remain above 6% this year.
Existing home sales have been in a deep sales slump dating back to 2022, when mortgage rates began to climb from pandemic-era lows. They sank to a nearly 30-year low last year as the average rate on a 30-year mortgage surged to a 23-year high of 7.79%.
Elevated mortgage rates, home prices near all-time highs and a chronic shortage of homes on the market have put off many would-be homebuyers.
In addition to the prospect for lower mortgage rates, more homes are hitting the market, giving home shoppers a wider selection to chose from.
All told, there were about 1.35 million unsold homes at the end of August, up 0.7% from July and 22.7% from August last year, NAR said.
That's the most homes on the market since October 2020, when there were 1.4 million homes for sale, but it's still down from 1.83 million homes on the market in 2019, Yun noted.
The inventory of available homes translates to a 4.2-month supply at the current sales pace, up from a 3.3-month pace at the end of August last year. Traditionally, a 5- to 6-month supply is considered a balanced market between buyers and sellers.
“Maybe the favorable backdrop — lower mortgage rates, more inventory -- will have an impact in coming months,” Yun said.
Homeownership is still out of reach for many Americans after years of surging home prices. Consider, the median U.S. home sales price has jumped 49% over the past five years, while wages grew by 25% in the same period.
Home shoppers who could afford to buy benefited last month from a modest pickup in properties on the market.
Another factor helping boost inventory: Homes are taking longer to sell, though they’re still being snapped up relatively quickly.
Homes typically stayed on the market for 26 days in August before they were sold, up from 20 days a year earlier.
Fewer homes received multiple offers. Some 20% of the homes that sold last month were bought for more than their original list price, down from 31% in August last year.
First-time homebuyers who don’t have any home equity to put toward their down payment continue to have a tough time getting into the housing market. They accounted for 26% of all homes sold last month, matching the all-time low from November 2021. It was down from 29% in August last year. They’ve accounted for 40% of sales historically.
Homebuyers who can afford to sidestep mortgage rates and pay all cash for a home accounted for 26% of sales last month, down from 27% in July and August 2023. And about 19% of homes sold last month were bought by individual investors or homeowners looking to buy a second home, down from 16% a year earlier, NAR said.