According to data from the National Association of Realtors (NAR), existing home sales fell for the eighth straight month from August to September, declining 1.5% during the last month. Existing home sales, which include completed transactions of single-family homes, townhomes, condos, and co-ops, are a significant indicator of where the real estate market is going.
With existing home sales down 23.8% between September 2021 and September 2022, it is clear that homebuying demand is significantly lower now than it was during the homebuying frenzy of the pandemic. Andrew Yun, chief economist at NAR, said that high interest rates are a major factor affecting declining home sales, but low inventory is keeping demand for each housing unit relatively high.
“The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%. Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales”, Yun said in a press release. “Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory.”
Inventory to Remain Low
Total housing inventory at the end of September was 1.25 million units, a modest 0.8% annual decrease. Demand for each property remained relatively high, as each home was on the market for 19 days in September, up slightly from 17 days in September 2021. Almost three-quarters of homes in September 2022 were on the market for less than a month.
Low inventory is a lifeline for sellers amid cratering home sales, and it doesn’t appear that inventory will increase by much soon. Recent U.S. Census data found that new housing starts declined 8.1% from August to September to 1,439,000 and 7.7% annually.
Housing units authorized for building permits, on the other hand, increased 1.4% last month despite a 3.1% annual decrease. At the same time, housing completions increased 6.1% last month and 15.7% every year. Experts caution that an increase in building permits in September is likely short-lived.
“Ignore the uptick in permits,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a statement. “The downturn in housing starts has much further to run. Housing starts lag permits, which ultimately are driven by mortgage demand, and the purchase applications index is now dropping to new cycle lows in the wake of the…increase in mortgage rates since mid-August,” Shepherdson wrote.
Home Prices Keep Falling
The median existing-home sales price in September was $384,800. While this is an 8.4% annual increase, sales prices fell for the last three months straight. Existing-home prices reached $413,800 in June but fell 7% during July, August, and September. Most economists predict home prices will fall in 2023, with many reputable firms such as Moody’s Analytics, Goldman Sachs, and JP Morgan predicting 5-10% declines or more.
