By Lucia Mutikani
WASHINGTON, Oct 13 (Reuters) – US existing home sales unexpectedly increased in September, but the trend stayed subdued against the backdrop of rising mortgage rates and still higher prices, which have made the dream of owning a house unattainable for many young Americans.
The rise in sales reported by the National Association of Realtors on Tuesday mostly reflected a downward revision to August’s sales pace. Housing supply increased to pre-COVID-19 pandemic levels, highlighting weak demand. Despite the rise in supply, the median house price was the highest on record for any September, underscoring the affordability crisis that has taken center stage ahead of the November 3 midterm elections.
“The unexpected increase in existing home sales likely reflected delayed closings and improved inventory,” said Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets. “But, with 30-year mortgage rates nearing 7.5%, prices still climbing and affordability deteriorating, the housing market is likely to remain subdued for some time.”
Home sales advanced 1.5% last month to a seasonally adjusted annual rate of 3.99 million units. August’s sales were revised down to show a 3.2% drop instead of the previously reported 2.0%. Economists polled by Reuters had forecast home resales would decline to a rate of 3.95 million units.
Sales remained below the 4.0 million unit pace for a second straight month. The housing market accounts for a small share of the economy, and has been struggling since mid-2024.
Sales fell 2.2% on a year-over-year basis in September. The NAR noted that lockbox traffic was down 3% from a year ago.
“This low sales activity that we are experiencing is clearly due to the lack of demand, not due to limited supply,” said Lawrence Yun, the NAR’s chief economist. “Higher mortgage rates are the big reason for that.”
Mortgage rates have been on an upward trend since the US-Israeli war with Iran started at the end of February.
The conflict is fanning inflation and boosting US Treasury yields, which mortgage rates track. The 30-year fixed mortgage rate averaged 7.40% last week, the highest level since November 2023, compared with 7.28% in the prior week, data from mortgage finance agency Freddie Mac showed. The rate has soared by 142 basis points since the end of February.
RISING BORROWING COSTS
The Federal Reserve last month raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range, the first hike in three years, and flagged further increases in borrowing costs in the months ahead.
Sales increased in the South and West regions in September, but fell in the Northeast and were unchanged in the Midwest.
Existing housing inventory rose 1.9% to 1.60 million units, the highest level since November 2019. Supply was 4.6% higher than a year ago. At September’s sales pace, it would take 4.8 months to exhaust the current inventory of existing homes, unchanged from August, but up from 4.5 months a year ago.
“Increases in supply aren’t the norm in September as housing activity starts to slow in the fall,” said Nancy Vanden Houten, lead US economist at Oxford Economics. “The increase in supply is due to more homes sitting on the market longer than to additional sellers entering the market.”
The median existing home price last month increased 1.3% from a year ago to $417,500, the highest for any September. The bulk of the homes sold last month were in the $250,000-750,000 price range.
NAR’s Yun described the housing market as being tougher for both sellers and buyers. He said a survey of realtors showed overall pessimism about activity over the next three months, with 8% expecting some increase in sales, the lowest since late 2023 when the 30-year fixed mortgage rate was approaching 8%.
Sales of homes priced $1 million and above increased 4.1% from a year ago. The rest of the price categories experienced declines, with sharp decreases in houses priced $100,000 and below as well as those in the $100,000-$250,000 band. Realtors say there is a shortage of starter homes.
First-time buyers accounted for 31% of sales, up from 30% in August and a year ago. A 40% share in this category is needed for a robust housing market.
The median number of days on the market for listed properties climbed to 33 from 31 in August, but was unchanged from a year ago. Distressed sales, including foreclosures, were unchanged at 2%. The share of cash transactions was unchanged from August at 27%, but declined from 30% a year ago.
Individual investors or second-home buyers accounted for 20% of transactions, up from 15% in August and a year ago.
“It is still hard to find much good news about the residential real estate market here,” said Carl Weinberg, chief economist at High Frequency Economics.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci )
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