LOS ANGELES (AP) – U.S. existing home sales fell for the third straight month in August as rising mortgage rates, rising prices and a lack of properties on the market shut out many prospective home buyers.
Existing home sales fell 0.7% last month from July to a seasonally adjusted annual rate of 4.04 million, the National Association of Realtors said Thursday. That’s lower than the 4.1 million pace that economists had expected, according to FactSet.
Sales decreased by 15.3% year-on-year and by 21% through the first eight months of this year compared to the same period in 2022.
Meanwhile, prices rose again last month as buyers competed for near-record-low home inventory on the market.
The national median sales price increased 3.9% from last August to $407,100, marking the third consecutive month the median price exceeded $400,000. Last month’s median sales price was also the fourth highest on record since 1999.
“Despite the decline in home sales, home prices continue to rise,” said NAR Chief Economist Lawrence Yun. “Supply essentially needs to double in order to slow the rise in house prices.”
Even though rising mortgage rates have forced many buyers to the sidelines, a lack of homes for sale has kept the market competitive, especially in many places for the most affordable homes. A bidding war is underway.
Last month, buyers typically purchased homes within just 20 days of the property being on the market, and about 31% of homes sold for above list price.
“Sales are down and people are having a hard time buying homes, but prices are going up,” Yun said.
According to NAR, there were a total of 1.1 million homes on the market by the end of last month, down 0.9% from last July and 14.1% from August. This equates to just 3.3 months’ supply based on the current sales pace. In a market with a balance of buyers and sellers, there is four to five months’ supply.
Potential home buyers also feel that their purchasing power is decreasing as mortgage interest rates rise.
The average weekly interest rate for a 30-year mortgage hovered around 7% in June and July, meaning that many home sales would have closed in August. It has remained above 7% since then, rising at one point to 7.23% last month, a 22-year high, according to mortgage buyer Freddie Mac. This week, the average interest rate rose to 7.19%.
High interest rates can add hundreds of dollars a month to costs for borrowers, limiting what they can pay in a market that is already unaffordable for many Americans. It would also discourage homeowners who locked in that low interest rate two years ago from selling.
Mortgage rates track movements in the 10-year Treasury yield, which lenders use as a guide to pricing loans. Yields have been rising on expectations that the Federal Reserve will keep short-term interest rates high for an extended period of time to combat inflation.
Federal Reserve policymakers on Wednesday said they expected another interest rate hike this year and that key interest rates in 2024 would remain higher than most analysts expected. .
The 10-year Treasury yield rose to 4.46% in Thursday morning trading, up from 4.40% late Wednesday and 0.50% three years ago. It is now nearing its highest level since 2007.
“Mortgage interest rates could rise to 8% in the short term,” Yun said.
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