Washington D.C., USA: The National Association of Realtors released a report on Friday showing existing home sales in the U.S. tumbled by much more than anticipated in the month of September. This follows After a month of stagnation in August.
NAR said existing home sales plunged by 3.4 percent to an annual rate of 5.15 million in September after edging down by 0.2 percent to a revised rate of 5.33 million in August.
Economists had expected existing home sales to drop by 0.7 percent to a rate of 5.30 million from the 5.34 million originally reported for the previous month.
With the much bigger than expected decrease, existing home sales slumped to their lowest annual rate since November of 2015.
“A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases,” said NAR chief economist Lawrence Yun. “All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country.”
The report showed notable decreases in existing home sales in the South, West, and Northeast, while existing home sales in the Midwest were unchanged.
NAR said the median existing home price in September was $258,100, down 2.8 percent from $265,600 in August but up 4.2 percent from $247,600 in September of 2017.
Total housing inventory at the end of September decreased to 1.88 million existing homes available for sale, reflecting 4.4 months of supply at the current sales pace.
The report also said single-family home sales fell by 3.4 percent to an annual rate of 4.58 million, while existing condominium and co-op sales also dropped by 3.4 percent to a rate of 570,000.
Next Wednesday, the Commerce Department is scheduled to release a separate report on new home sales in the month of September.
The sixth-straight monthly drop in sales, the longest streak since 2014, underscores what’s now a challenging time in the real estate market for buyers. The average mortgage rate for a 30-year fixed term has advanced nearly 1 percentage point this year, compared to a decline in 2017, according to Bloomberg calculations of Bankrate.com data.
The drag from higher mortgage rates is “likely to weigh on the existing home sales data in upcoming reports over the next several months,” Daniel Silver, an economist at JPMorgan Chase & Co., said in a note.
Rising prices are also keeping homes unaffordable, particularly for first-time buyers. Those price gains are fueled by demand — homes stayed on the market for only 32 days on average, compared with 34 days a year earlier. There’s also a lack of supply, with inventories ticking up yet remaining tight.
“There is without a doubt a clear shift in the market as evidenced by lower sales and higher inventory,” Lawrence Yun, NAR’s chief economist, said at a briefing accompanying the release of the report. The shift reflects a cooling in the market from recent highs and Americans digesting the higher cost of a mortgage, he said, adding that the decline in closings was the biggest since early 2016.
At the same time, tax cuts and a tight jobs market — keeping people steadily employed and helping lift wages — should continue buoying some buyers. Yun said that the positive effects have been canceled out by the rising burden of mortgage rates.
Hurricanes may have impacted sales data by curbing home-buying plans and transactions, though the latest storms impacted a small share of deals, NAR said. Florence’s mid-September Florida landfall came about a year after Irma battered the state.
The data are also in line with government numbers Wednesday that showed new-home construction fell in September as Florence disrupted activity in the South. Future building also showed signs of weakness with multifamily permits dropping by the most in two years.
A gauge of homebuilders in the S&P 500 fell 1.8 percent as of 11:30 a.m. in New York, bringing it to the lowest level since March 2017 as almost all 15 members slumped.
“New housing construction faces headwinds in the way of rising labor and input costs, which has also put upward pressure on home prices,” Shernette McLeod, an economist at TD Economics, wrote in a note.
Purchases fell in three of four regions, led by a 5.4 percent slump in the South; Midwest sales were unchanged from the prior month.
The decline in sales cut across price categories with the least expensive homes, those under $100,000, slumping 18.3 percent, while those at more than $1 million cooled by 1.6 percent, the most in two years.
Sales of single-family homes and condominium and co-op units both dropped 3.4 percent from the prior month
At the current pace, it would take 4.4 months to sell the homes on the market, compared with 4.3 months a year earlier – Realtors group considers less than five months’ supply consistent with a tight market.
Existing home sales account for about 90 percent of the market and are calculated when a contract closes.
The remainder of the market is made up by new home sales, which are considered a timelier indicator and are tabulated when contracts get signed.
Why Markets Care About Existing Home Sales Also Called Home Resales
Existing Home Sales report is released monthly, about 20 days after the month ends, by the National Association of Realtors (NAR).
It measures annualized number of residential buildings that were sold during the previous month, excluding new construction. While this is monthly data, it’s reported in an annualized format (monthly figure x12).
The Existing-Home Sales data measures sales and prices of existing single-family homes for the nation overall, and gives breakdowns for the West, Midwest, South, and Northeast regions of the country. These figures include condos and co-ops, in addition to single-family homes.
Existing Home Sales is a leading indicator of economic health because the sale of a home triggers a wide-reaching ripple effect. For example, renovations are done by the new owners, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction.