U.S. existing home sales continued to slide in August as a combination of steep mortgage rates and a worsening supply shortage squeezed would-be homebuyers.
Sales of previously owned homes fell 0.7% in August from the previous month to an annual rate of 4.04 million units, according to new data released Thursday by the National Association of Realtors (NAR). On an annual basis, existing home sales are down 15.3% when compared with August 2022.
There were about 1.1 million homes for sale at the end of August, according to the report, down 0.9% from the previous month and 14.1% from the same time one year ago.
The decline in inventory helped to drive prices higher last month. The median price of an existing home sold in August was about $407,100 – up 3.9% from one year ago. It marked the fifth time on record that prices eclipsed $400,000.
"Home prices continue to march higher despite lower home sales," said Lawrence Yun, chief economist at NAR. "Supply needs to essentially double to moderate home price gains."
The worsening housing shortage has also buoyed consumer demand.
Homes sold on average in just 20 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 3.3 months to exhaust the inventory of existing homes. Experts view a pace of six to seven months as a healthy level.
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 7.18%, according to Freddie Mac, well above the 6.02% rate recorded one year ago and 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.
The number of available homes on the market at the end of July was down by more than 9% from the same time last year and down 46% from the typical amount before the COVID-19 pandemic began in early 2020, according to a recent report from Realtor.com.
"All of the momentum for the housing market early in 2023 has evaporated in the face of rising mortgage rates," said Ben Ayers, Nationwide chief economist. "Overall demand for single-family homes has cratered as the burden of a mortgage payment climbs to unsustainable levels."