© Reuters FILE PHOTO: Carpenters work on building new townhouses under construction in Tampa, Florida, U.S., May 5, 2021, as construction materials are in high demand. REUTERS/Octavio Jones
By Lucia Muticani
WASHINGTON (Reuters) – U.S. home sales fell for a seventh straight month in August, as purchasing power continued to grow amid rising home sales and stubbornly high home prices, although the pace of the decline was slower than in previous months.
A National Association of Realtors report on Wednesday showed this week that confidence among single-family home builders fell for the ninth consecutive month in September, while new home building permits fell in August to the lowest level since June 2020.
The Federal Reserve’s tight monetary policy, characterized by high interest rates, has weakened the housing market significantly. In contrast, other sectors of the economy, like the labor market, have shown incredible strength despite the Fed’s efforts to slow demand.
“The decline in affordability is to some extent by design,” said Daniel Vielhaber, a National Economist in Columbus, Ohio. “Housing is highly sensitive to changes in the Fed’s interest rate policy. The Fed’s goal of raising interest rates and reducing economic demand starts with home sales.”
Existing home sales fell 0.4% last month to a seasonally adjusted annual rate of 4.80 million units. In the year This is the lowest level of sales since November 2015, discounting the fall in the spring of 2020 as the economy reeled from the first wave of Covid-19.
Sales increased in the Northeast and West, but remained unchanged in the populous South. They fell in the Midwest, which is generally considered a more affordable housing region.
Economists polled by Reuters had expected sales forecasts to fall to 4.70 million units.
The sharper-than-expected decline was likely the result of contracts signed in July, when mortgage rates pulled back after a sharp increase. They cooled further in August, which could lead to some gains in home sales in September.
But the outlook for the housing market is dark. Housing finance giant Fannie Mae on Wednesday cut its forecast for total home sales to 5.71 million from 5.78 million units previously. Home sales are expected to come in at 4.98 million units in 2023, up from the previous estimate of 5.18 million units.
Stocks on Wall Street were trading higher. The dollar has risen against its currencies. For the first time since 2007, the interest-rate-sensitive two-year Treasury note hit 4%.
(Graphic: Housing Pain, https://graphics.reuters.com/HOME-RESALES/zjvqkrbakvx/chart.png)
High mortgage rates
The Fed is expected to raise its policy rate by 75 basis points later Wednesday for the third time in as many policy meetings. Since March, the central bank has raised that rate from near zero to the current 2.25% to 2.50%.
Doug Duncan, Fannie Mae’s chief economist, said: We expect it to continue until 2023.
The 30-year fixed mortgage rate averaged 6.02% last week, up from 5.89% the previous week, and rose more than 6% for the first time since November 2008, Mortgage Finance Agency data showed. Freddie Mac (OTC:)
While home price growth has slowed due to weak demand, tight supply is driving up prices. The median existing home price rose 7.7% to $389,500 in August from a year ago. This is the smallest year-over-year increase since the outbreak began. The median home price rose to a June high of $413,800.
Since the beginning of the year, rising mortgage rates and home prices have increased monthly mortgage payments by more than 50 percent.
“House price growth may be slowing, but the limited supply of homes for sale will prevent a sharp downturn,” said Nancy Vanden Houten, an American economist at Oxford Economics in New York.
There were previously 1.28 million homes on the market, unchanged from a year ago as high borrowing costs discourage owners who had low prices years ago from selling their properties.
At August’s sales pace, it will take 3.2 months to exhaust the inventory of existing homes, compared to 2.6 months a year ago. A supply of five to seven months is seen as a healthy balance between supply and demand. The improvement is largely due to weakening sales.
Properties typically stay on the market for 16 days, up from 14 days in July, but down from 17 days last August. It was common in the market for 30 days before the outbreak. 81 percent of the homes that sold were on the market for less than a month.
First-time buyers accounted for 29% of purchases in July, unchanged from a year ago. All-cash sales accounted for 24% of transactions, up from 22% a year ago. Before 2020, cash sales will account for only 20% of transactions.
NAR has a higher percentage of cash sales for people who need a loan to buy a home that is coming off the market.