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Housing Slump Continues as Existing-Home Sales Drop

'The softness in home sales reflects this year's escalating mortgage rates,' says economist Lawrence Yun.
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The bad news for the housing market continues to mount.

Existing-home sales fell for a seventh straight month in August, dropping 0.4% from July and 19.9% from a year earlier, according to the National Association of Realtors. 

The annualized sales pace was the lowest since May 2020, early in the pandemic.

The median existing-home-sale price dropped for the second month in a row – to $389,500 in August, down 3.5% from $403,800 in July. The price hit a record peak of $413,800 in June.

To be sure, the latest number still represents a 7.7% increase from $361,500 in August 2021, indicating home prices may still be unaffordable for most Americans.

August marked the 126th straight month of year-over-year increases, a record.

Fed Impact

"The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve's interest rate policy changes," NAR Chief Economist Lawrence Yun said in a statement.

"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."

The 30-year fixed mortgage rate averaged 6.02% in the week ended Sept. 15, the highest since 2008, according to Freddie Mac. 

The Fed raised interest rates 2.25 percentage points starting in March through Sept. 20. And the central bank on Sept. 21 tacked on another 0.75 percentage point, TheStreet's Martin Baccardax writes.

On the supply side, housing inventory slid 1.5% in August from July to 1.28 million units. That’s unchanged from a year ago. Unsold inventory totals 3.2 months of supply at the current sales pace, unchanged from July and up from 2.6 months in August 2021.

"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 trade down after locking in historically low mortgage rates in recent years, increasing the need for more new-home construction to boost supply."

Goldman Sachs Outlook

Goldman Sachs economists at the end of August expressed pessimism about housing. “Early this year, we argued that extremely limited available supply in the housing market would dampen the hit to housing activity from higher interest rates,” they wrote in a commentary.

“Since then, housing starts have declined 20% from their peak, and existing home sales have fallen 30%.”

Affordability isn’t the only negative for the housing market, the economists said.

“Existing-home sales and building permits have fallen more sharply this year in regions where they increased the most in the earlier part of the pandemic.”

This “suggests that the recent declines have also reflected the partial retreat of a pandemic-related boost to housing demand,” the economists said.

If you’re looking to buy a house, it may pay to wait. Home prices could drop a lot further, especially if there’s a recession in the next 12 months.