Home sales continue to decline, falling for the seventh month in a row in August, according to new data from the National Association of Realtors (NAR). Existing home sales fell 0.4% between July and August and were 19.9% lower in August 2022 than they were a year prior. This is yet another signal that the real estate market is significantly cooling down.
High Interest Rates Contribute to a Lack of Adequate Inventory
Total housing inventory declined 1.5% from July to August but remained around the same level from 2021. The United States has a massive housing shortage, with a deficit of homes reaching into the millions. In a press release, NAR Chief Economist Lawrence Yun said that high interest rates are partially to blame for this trend.
“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 down after locking in historically-low mortgage rates in recent years, increasing the need for more new-home construction to boost supply.”
Despite the declining number of transactions, homes are still selling quickly. 81% of the homes sold in August 2022 sold in under a month. Additionally, the average property stayed on the market for 16 days in August, slightly down from the average of 17 days in August 2021.
Home Prices Aren’t Growing Like They Used to
August’s median home price for all housing types was $389,500, representing a 7.7% annual increase. Between August 2020 and August 2021, home prices increased 18.2%, making the latest rise seem modest in comparison. Home prices continue to increase, with 126 consecutive months of annual price increases. There has never been a streak this long of annual increases, but home prices are now declining monthly.
August was the second consecutive month where the median sales price declined. Home sales prices reached a record high of $413,800 in June before declining 3.6% in July and 2.4% in August. Seasonal decreases after early summer are typical, but home prices typically decline only 1.0% in the summer months. Even despite these latest decreases, first-time homebuyers struggle to enter the market.
“The number of first-time buyers is not moving up,” said Yun. “The share should be above 30% or closer to 40%. But first time buyers are really struggling, given the current affordability challenges.”
Fed Chair Powell Predicts a Housing Market Correction
The Federal Reserve decided to increase the baseline interest rate by 0.75 basis points on Wednesday, September 21. After announcing the rate hike, Fed Chair Powell predicted a housing market correction.
“There was a big imbalance … housing prices were going up at an unsustainably fast level,” Powell said. “For the longer term what we need is supply and demand to get better aligned so housing prices go up at a reasonable level…and people can afford houses again. We probably in the housing market have to go through a correction to get back to that place.”
NAR’s Lawrence Yun said that “the housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve’s interest rate policy changes. 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.”
