Overview

In September, sales of previously owned homes experienced a 2% drop from August, reaching a seasonally adjusted annualized rate of 3.96 million units, as reported by the National Association of Realtors. Compared to September 2022, sales were down by 15.4%.

A Sluggish Market

This sales pace is the slowest since October 2010, during the Great Recession when the market faced a foreclosure crisis. Just two years ago, with mortgage rates around 3%, home sales were thriving at a pace of 6.6 million. However, the current average rate on a 30-year fixed mortgage now stands at approximately 8%, according to Mortgage News Daily.

Challenges in the Housing Market

According to Lawrence Yun, the chief economist of NAR, limited inventory and low housing affordability have been persistent obstacles to home sales this year. Yun also emphasized that the Federal Reserve should reconsider raising interest rates given the softening inflation and weakening job gains.

Declining Inventory

As of September, the number of homes available for sale was 1.13 million, marking an over 8% decrease from the previous year. With the current rate of sales, the inventory represents a 3.4-month supply, slightly better than the previous year, but only due to the significant decrease in sales.

Impact of Mortgage Rates and Prices

Higher mortgage rates have contributed to the decline in sales, while the median price of a home sold in September rose by 2.8% year over year, reaching $394,300. The scarcity of supply has led to bidding wars, with approximately 26% of homes being sold above the list price.

First-Time Buyers and High-End Market

First-time buyers accounted for only 27% of sales, well below the historical average of 40%. Sales across all price points declined, but the higher-end market experienced a relatively smaller decrease due to greater supply and the ability of higher-end buyers to use cash for purchases.

All-Cash Sales on the Rise

In September, all-cash sales comprised 29% of all transactions, an increase from 27% in August and 22% from the previous year’s September.

Future Outlook

Danielle Hale, chief economist for Realtor.com, suggests that the recent upward momentum following the Fed’s September projections may have led some buyers to expedite their purchases to avoid higher mortgage rates and worsening affordability in the coming months. This could potentially result in a further slowdown in sales activity in the near future.