U.S. existing home sales continued to slide in September as a combination of steep mortgage rates and a worsening supply shortage squeezed would-be homebuyers.
Sales of previously owned homes fell 2% in September from the previous month to an annual rate of 3.96 million units, according to new data released Thursday by the National Association of Realtors (NAR). On an annual basis, existing home sales are down 15.4% when compared with September 2022.
“As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” said Lawrence Yun, chief economist at NAR. “The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains.”
There were about 1.13 million homes for sale at the end of September, according to the report, up 2.7% from the previous month but down 8.1% from the same time one year ago.
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The slight uptick in inventory helped to drive prices lower when compared to the previous month. The median price of an existing home sold in September was about $394,300 – down about 3% from August but up 2.8% from the same time last year.
“For the third straight month, home prices are up from a year ago, confirming the pressing need for more housing supply,” Yun said.
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The housing shortage has also buoyed consumer demand.
Homes sold on average in just 21 days last month. While that is down slightly from the 14 days recorded in July 2022, it marks a major increase from prior years. Before the COVID-19 pandemic, homes typically sat on the market for about a month before being sold.
At the current pace of sales, it would take roughly 3.4 months to exhaust the inventory of existing homes. Experts view a pace of six to seven months as a healthy level.
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The supply crunch is largely being driven by the astronomical rise in mortgage rates over the past year. Rates are expected to remain elevated, as the Federal Reserve has hinted that it may hold interest rates at peak levels for longer than previously anticipated.
Rates on the popular 30-year fixed mortgage are currently hovering around 7.57%, according to Freddie Mac, well above the pre-pandemic average of 3.9%. It is near the highest level in two decades.
Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell with rates continuing to hover near a two-decade-high, leaving few options for eager would-be buyers.
A recent report from Realtor.com shows that the total number of homes for sale, including homes that were under contract but not yet sold, fell by 4% in September compared with the same time a year ago.
Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.
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