The U.S. housing market slowed for a seventh straight month in August, the longest stretch of declining sales since 2007, as higher mortgage rates continued to undercut buyer demand.
Home sales look poised to decline further in the coming months, economists say, as mortgage rates recently topped 6% for the first time since 2008, when the U.S. was in a recession. Many first-time buyers have been priced out of the market, and existing homeowners are opting to stay put rather than give up their current low rates.
“As long as mortgage rates remain elevated, sales will remain depressed,” said
chief economist at real-estate brokerage
The decrease in home sales is rippling through the economy. Consumers are spending less on housing-related items such as furniture and appliances, while construction of new single-family homes has also slowed.
Sales of previously owned homes dropped 0.4% in August from July to a seasonally adjusted annual rate of 4.8 million, the weakest rate since May 2020, the National Association of Realtors said Wednesday. August sales fell 19.9% from a year earlier.
The housing market has softened in recent months as the Federal Reserve aggressively raises interest rates to cool the economy and bring down high inflation. The Fed approved raising its benchmark federal-funds rate by 0.75 percentage point Wednesday.
The Fed’s interest-rate moves have led to higher mortgage-interest rates and increased borrowing costs for home buyers 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 ended Sept. 15, up from 2.86% a year earlier, according to housing-finance agency
The pandemic fueled housing market activity in mid-2020 when many Americans moved to larger houses with more outdoor space while spending greater time at home. Bidding wars were widespread, and homes were often snapped up in a matter of days.
The recent increase in mortgage rates is expected to further weigh on home sales this month and next. Homes typically go under contract a month or two before the contract closes, so the August data largely reflect purchase decisions made earlier in the summer. Mortgage rates rose to 5.81% in June, then pulled back for much of the summer.
The drop in demand is reducing buyer competition, and home-price growth has slowed from last year’s rapid pace. But prices remain above where they stood a year ago, because the number of homes for sale is still below normal levels.
The median existing-home price rose 7.7% in August from a year earlier to $389,500, NAR said. Prices fell month-over-month for the second straight month after reaching a record high of $413,800 in June. While prices typically decrease in the late summer, the monthly declines have been bigger than normal, said
NAR’s chief economist.
The combination of high prices and rising interest rates has pushed home-buying affordability near 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 Corp.
“To make the biggest financial decision of your life, you need to have some confidence in the economy, in your job, in the labor market,” she said.
Consumer sentiment toward the housing market fell in August to the lowest level since 2011, according to
Many buyers rushed to purchase in the first few months of the year, because they expected mortgage rates to rise, reducing the number of buyers left in the market today, said Redfin’s Ms. Fairweather. “We’re experiencing an especially cold fall and winter, because the spring was so hot,” she said.
Philip Natale went under contract to buy a new home in Henderson, Nev., in December. By the time he locked in an interest rate this spring, rates had climbed from around 3% to above 5%, pushing up his monthly payment by several hundred dollars.
Philip Natale; Sandra Dawson
“It’s horrible,” he said, but he hopes to refinance the loan at a lower rate within the next year or two. “The first 12 to 18 payments are probably going to be a big bummer,” he added.
To save on costs, Mr. Natale is eating 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 as I’m buying a home,” he said.
In the four weeks ended Sept. 11, 7.2% of homes on the market each week had a price drop, up from 3.8% a year earlier, according to Redfin. Homes on average sold for 0.5% below their final list price, compared with 1.1% above list price a year earlier.
Nationally, 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.
“Home-price growth is likely to continue to decelerate,” Oxford Economics—which forecasts that existing-home sales will 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 decline.”
Charlie and Ashley Richards, who are both 29, started shopping for the first home in Charleston, S.C., in June after they found out their rent was going up by $800 a month.
“We got into the market at the right time. Stuff was starting to slow down a bit,” Mr. Richards said. “There were a handful of houses that we looked at that had been on the market for 30 to 60 to 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 U.S. home-builder 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 one-fourth of builders surveyed said they had reduced prices in the past month, NAHB said.
Residential permits, which can be a bellwether for future home construction, also fell 10%, though housing starts rose 12.2% in August from July, the Commerce Department said this week.
owner of The Wall Street Journal, also operates Realtor.com under license from NAR.
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