Sales of existing homes in August came in lighter than expected, nearing a 13-year low, according to data released by a trade group. Despite this, prices continued to rise, and there is a possibility that mortgage rates could increase to 8%.
Slump in Sales
The National Association of Realtors revealed that in August, sales of previously owned homes reached a seasonally adjusted annual rate of 4.04 million, falling short of the consensus estimate of 4.1 million. This figure is 15.3% lower compared to the same period last year and only 1% higher than the cyclical low of 4 million sales in January. Additionally, August sales marked the lowest point of the year since January, with a 0.7% decrease from the previous month’s figure of 4.07 million.
Mortgage Rate Impact
The decline in sales coincided with mortgage rates surpassing 7%, which occurred in the middle of August. This marked the first time since November 2022 that rates have reached this level as measured by Freddie Mac. Unfortunately, they have remained at this level since then, contributing to the increased cost of financing a home purchase.
Bleak Prospects for Buyers
Prospective buyers should not expect any relief soon. The upcoming Freddie Mac mortgage-rate reading, set to be released on Thursday at noon, is unlikely to provide any positive news. The 10-year Treasury yield, which often influences mortgage rates, currently stands at 4.484%, the highest level since October 18, 2007, according to Dow Jones Market Data.
According to Lawrence Yun, NAR’s chief economist, there is a possibility that the 10-year Treasury yield could reach 5%, resulting in significantly higher mortgage rates in the near future. Yun suggested that mortgage rates could even rise as high as 8% in the short term.
Housing Market Update: Sales and Prices on the Rise
Sales Projected to Fall as Mortgage Rates Increase
According to an economist, rising mortgage rates could potentially result in a significant decline in sales. If sales in the coming months drop below a seasonally adjusted annual rate of 4 million, it would mark the lowest sales figure since October 2010. However, the economist also predicts that softer economic activity will lead to lower mortgage rates by next spring.
Prices Continue to Surge
In contrast to declining sales, housing prices have been steadily rising. In August, the median price of existing homes sold reached $407,100. This figure represents a 3.9% increase from the previous year, marking the most significant year-over-year rise since November 2022. It’s also the highest August sales price in the history of the trade group.
Unusual Increase in August Home Prices
Typically, the median home price falls in August compared to July due to seasonal trends. However, this year saw a rare anomaly as home prices continued to ascend. Over the past decade, prices have only risen in August from July once before, during the early months of the 2020 homebuying boom.
Supply Shortage Persists Despite Higher Prices
Despite the surge in prices, housing inventory remains constrained. There were only 1.1 million homes available for sale at the end of August, which is a 0.9% decline from July and 14.1% lower than the previous year. As a result, Lawrence Yun, an economist, emphasized the need for supply to double in order to moderate home price increases.
In conclusion, while the housing market continues to face challenges such as rising mortgage rates and limited supply, prices have shown no signs of slowing down. Future developments in economic activity and mortgage rates will be crucial factors to watch for in determining the direction of the housing market.