Sales fell 4.2% compared with August last year(Image: Gene J. Puskar)

Spotlight on US housing market as prices climb to record high amid base rate cut

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

by · The Mirror

August saw a dip in the sales of previously owned homes in the US, marking the slowest annual rate in almost a year despite softer mortgage rates and more properties on the market.

The National Association of Realtors revealed on Thursday that existing home sales dropped by 2.5% from July to a seasonally adjusted annual rate of 3.86 million. This decline was also 4.2% lower than August last year, falling short of the anticipated 3.9 million pace that economists had forecasted, according to FactSet data.

House prices haven't stopped climbing, with the national median sales price hitting a new August record of $416,700, a 3.1% increase from the previous year, continuing a 14-month streak of annual gains. "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," commented Lawrence Yun, the NAR's chief economist.

In a move that could spell good news for the housing market, the Federal Reserve slashed its main interest rate for the first time in over four years on Wednesday. Fed officials also hinted at the possibility of further reductions this year and into 2025 and 2026, which could eventually translate into lower mortgage borrowing costs.

Mortgage rates have been on a downward trend since July, buoyed by signs of easing inflation and a less heated job market, fuelling hopes for a Federal Reserve rate cut. This week, the average rate on a 30-year home loan dipped to 6.09%, hitting its lowest point since early February 2023, as reported by mortgage buyer Freddie Mac.

Despite more appealing mortgage rates, it's likely that home sales took a dip last month, partly because many potential buyers were betting on the Fed to slash rates. "So far, those buyers who waited, may be glad that they did," remarked 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 in agreement that the average rate on a 30-year mortgage will stay above 6% throughout this year. Existing home sales have been suffering a significant downturn since 2022, which was exacerbated when mortgage rates started rising from their pandemic-era lows.

They plummeted to a nearly 30-year low last year as the average rate on a 30-year mortgage soared to a 23-year peak of 7.79%. High mortgage rates, soaring home prices close to record highs, and a persistent shortage of homes for sale have deterred many prospective buyers.

However, with the possibility of lower mortgage rates on the horizon, coupled with an increase in homes entering the market, house hunters now have a broader selection to choose from. In total, there were approximately 1.35 million unsold homes at the end of August, a rise of 0.7% from July and 22.7% from August last year, according to NAR.

This is the highest number of 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 pointed out. The inventory of available homes equates 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 favourable backdrop — lower mortgage rates, more inventory -- will have an impact in coming months,” Yun suggested. Homeownership remains unattainable for many Americans after years of skyrocketing home prices.

For instance, the median US home sales price has surged 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 increase 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 remained 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 buyers, who lack home equity to contribute towards their down payment, are still finding it difficult to enter the housing market. They made up 26% of all homes sold last month, equalling the record low from November 2021 and down from 29% in August last year.

Historically, they've represented 40% of sales. Buyers who can afford to bypass mortgage rates and pay cash for a property accounted for 26% of sales last month, a decrease from 27% in July and August 2023. Around 19% of homes sold last month were purchased by individual investors or homeowners seeking a second property, a drop from 16% the previous year, according to NAR.