US home sales and prices fell in August as mortgage rates rose

US home sales and prices fell in August as mortgage rates rose

The US housing market slowed for the seventh consecutive month in August, the longest stretch of falling sales since 2007, as higher mortgage rates continued to undermine buyer demand.

Home sales appear poised to fall further in the coming months, economists say, as mortgage rates recently topped 6% for the first time since 2008, when the US was in recession. Many first-time buyers have been left out of the market, and existing homeowners are choosing to stay on rather than give up their current low rates.

“As long as mortgage rates stay high, sales will remain depressed,” said Daryl Fairweather, chief economist at real estate brokerage Redfin. corporation

The decline in home sales is affecting the economy. Consumers are spending less on home-related items like furniture and appliances, while construction of new single-family homes has also slowed.

Existing home sales fell 0.4% in August from July to a seasonally adjusted annual rate of 4.8 million, the lowest rate since May 2020, the National Association of Realtors said on Wednesday. August sales fell 19.9% ​​from a year earlier.

The housing market has weakened in recent months as the Federal Reserve aggressively raises interest rates to cool the economy and reduce high inflation. The Fed approved raising its benchmark federal funds rate by 0.75 percentage point on Wednesday.

The Fed’s interest rate moves have led to higher mortgage interest rates and increased borrowing costs for homebuyers by hundreds of dollars a month, pushing many out of the market. . The average rate on a 30-year fixed-rate mortgage was 6.02% in the week ending September 15, up from 2.86% a year earlier, according to housing finance agency Freddie Mac..

Pandemic-driven housing market activity in mid-2020, when many Americans moved into larger homes with more outdoor space while spending more time indoors. Bidding wars were widespread and houses were often bought in a matter of days.

The recent increase in mortgage rates is expected to further affect home sales this month and next. Homes are typically contracted for a month or two before the deal closes, so August’s data largely reflects buying decisions made earlier in the summer. Mortgage rates rose to 5.81% in June and then fell for much of the summer.

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Falling demand is reducing buyer competition, and home price growth has slowed from last year’s brisk pace. But prices remain above where they were a year ago because the number of homes for sale is still below normal levels.

The median price of existing homes rose 7.7% in August from a year earlier to $389,500, the NAR said. Prices fell month over month for the second month in a row after hitting a record high of $413,800 in June. While prices typically decline in late summer, the monthly declines have been larger than normal, said Lawrence Yun, chief economist at NAR.

The combination of high prices and rising interest rates has pushed home buying affordability to its lowest level in decades. General economic uncertainty is also keeping buyers on the sidelines, said Odeta Kushi, deputy chief economist at First American Financial. corporation

“To make the biggest financial decision of your life, you have to have some confidence in the economy, in your job, in the job market,” he said.

Consumer confidence in the housing market fell in August to the lowest level since 2011, according to Fannie Mae..

Many buyers rushed to buy in the first few months of the year because they expected mortgage rates to rise, which would reduce the number of buyers left in the market today, said Redfin’s Ms. Fairweather. “We are experiencing an especially cold fall and winter, because the spring was so hot,” she said.

Philip Natale signed a contract to buy a new house in Henderson, Nevada, in December. When he locked in an interest rate this spring, rates had risen from about 3% to more than 5%, raising his monthly payment by several hundred dollars.

Philip Natale, with his mother, Michelle, wearing a hat, says rising interest rates have pushed up the monthly payment on a new home in Henderson, Nevada. Charlie and Ashley Richards bought their first home in Charleston, South Carolina, in September. Philip Natale; sandra dawson

“It’s horrible,” he said, but he hopes to refinance the loan at a lower rate within a year or two. “The first 12 to 18 payments are probably going to be a big pain,” she added.

To save costs, Mr. Natale eats out less and has decided to delay buying a car. “I just don’t want to feel the stress of adding a car at the same time I’m buying a house,” he said.

In the four weeks ending 9/11, 7.2% of homes on the market each week saw price declines, down from 3.8% a year earlier, according to Redfin. Homes sold on average 0.5% below their final list price, compared to 1.1% above list price a year earlier.

Nationwide, there were 1.28 million homes for sale or under contract at the end of August, down 1.5% from July and unchanged from August 2021, NAR said.

“House price growth is likely to continue to slow,” Oxford Economics, which forecasts existing home sales to fall further through the end of the year, said in a note to clients. “But the limited supply of homes for sale will likely prevent too steep a drop.”

Charlie and Ashley Richards, both 29, started looking for their first home in Charleston, South Carolina, in June after learning the rent was going up $800 a month.

“We entered the market at the right time. Things were starting to slow down a little bit,” Richards said. “There were a handful of houses that we looked at that had been on the market for 30 to 60 and even 90 days.”

They bought a house this month for about 3% below the asking price. “I’m very excited,” Mr. Richards said.

The new home market, which accounts for about 10% of home sales, has also shown signs of weakness. A measure of US homebuilder confidence fell for the ninth straight month in September to the lowest level since May 2020, the National Association of Home Builders said this week. About a quarter of builders surveyed said they had cut prices in the past month, the NAHB said.

Residential permits, which may be a benchmark for future homebuilding, also fell 10%, although housing starts rose 12.2% in August from July, the Commerce Department said this week.

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