U.S. sales of previously owned homes decline for a seventh month

Sales of previously owned U.S. homes fell for the seventh straight month in August as rising mortgage rates continued to erode affordability and deal a considerable blow to the housing market. 

Contract closings fell 0.4% to an annualized pace of 4.8 million, the weakest since May 2020, figures from the National Association of Realtors showed Wednesday. The median estimate in a Bloomberg survey of economists called for 4.7 million. Sales fell 17.4% from a year ago on an unadjusted basis.

The string of declines was the longest since housing market crashed in 2007. Soaring financing costs and still-elevated home prices are thwarting many potential buyers. While softer demand has dampened industry sentiment, economists foresee relatively modest pullbacks in housing prices amid still-constrained supply across most areas.

The average rate on a 30-year fixed mortgage surged to 6.25% last week, the highest in almost 14 years and more than double what it was a year ago, according to the Mortgage Bankers Association. 

Rising borrowing costs come as Treasury yields climb in the wake of tighter Federal Reserve monetary policy aimed at reining in decades-high inflation. The central bank is expected to announce a three-quarters of a percentage point rate increase later on Wednesday, which would mark the third such hike in a row.

"Inventory will remain tight in the coming months and even for the next couple of years," Lawrence Yun, NAR's chief economist, said in a statement. "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."

The number of homes for sale fell 1.5% from July to 1.28 million. At the current sales pace it would take 3.2 months to sell all the homes on the market, up from 2.6 months in August 2021. Realtors see anything below five months of supply as indicative of a tight market.

Despite declining sales, "we are seeing no increase in inventory on net," Yun said.

Sales Prices

The median selling price rose 7.7% from a year earlier to $389,500. The annual increase was the smallest since June 2020. After hitting a record $413,800 in June, prices have fallen on a monthly basis. The August decline was broad across price points and regions.

"In a sense, we're seeing a return to normalcy with the homebuying process as it relates to home inspections and appraisal contingencies, as those crazy bidding wars have essentially stopped," NAR President Leslie Rouda Smith said in a statement.

First-time buyers accounted for 29% of all transactions in August, matching the July share.

Cash sales represented 24% of total sales. Investors, who typically purchase with cash and are therefore less sensitive to mortgage rates, made up 16% of the market. That's up from 14% a month earlier.