A disappointing September pushes home sales to 14-year low
Lower mortgage rates and rising inventory failed to entice buyers, particularly first-timers, as prices continued their year-over-year climb.
Mortgage rates dipped to their lowest level of the year in September, while inventory climbed — but that wasn't enough to boost sales last month.
Total existing home sales hit a 14-year slump, falling 1% in September compared to August and declining 3.5% year-over-year, according to the latest data from the National Association of Realtors. The annualized seasonally adjusted rate came in at 3.84 million in September, the lowest since October 2010, according to the National Association of Home Builders.
With slower sales, inventory continues to rise, hitting 4.3 months supply in September. A year ago, inventory was sitting at just 3.4 months.
"Sales remained sluggish as the lock-in effect kept home prices elevated," said Fan-Yu Kuo, a senior economist at NAHB. "However, we expect increased activity in the coming months as mortgage rates moderate with additional Fed easing. Improving inventory should help slow home price growth and enhance affordability."
But even at 4.3 months, supply remains below pre-pandemic levels. The current market dynamic — one where supply is constrained at the same time demand has waned — is something that doesn't happen often, said Danielle Hale, chief economist at Realtor.com.
What's ahead? While a fall rally now looks unlikely, real estate economists remain somewhat optimistic about sales based on the expectation that mortgage rates, after rising in recent weeks, will start going down again.
"More inventory and lower rates should translate into more home buying and selling activity in the fourth quarter," said Lisa Sturtevant, chief economist at Bright MLS. "Overall, therefore, the fourth quarter should be a busy time for the U.S. housing market and total home sales for the year should edge up above the 2023 level."
Increased downside risks could stymie a late 2024 uptick, however. Mortgage rates have proven difficult to predict, and inflation can remain sticky. Even if inflation does ease, a weaker economy could hurt homebuyer demand.
And, of course, there's the uncertainty of the upcoming presidential election.
"A disruptive process could lead to higher mortgage rates, more anxiety among consumers, and a stuttering housing market this winter," Sturtevant said.
Prices still rising: The cost of existing homes continued to climb, rising 3% to a median price of $404,500 in September.
While home prices have fallen from June's record high, it's the 15th consecutive month of annual price increases. But gains have slowed to the point where wage growth is outpacing home price appreciation, so that could help improve affordability, said Lawrence Yun, chief economist at NAR.
Rising prices are likely deterring some first-time homebuyers. According to NAR, first-time buyers accounted for 26% of existing home sales, matching an all-time low from last month and November 2021. All-cash sales made up 30% of transactions, an increase from 26% in August.