WASHINGTON – U.S. home sales slid in August by the most since January as tight supplies and rising prices discouraged potential buyers.
The National Association of Realtors said Monday that sales of existing homes fell 4.8 per cent from the previous month to a seasonally adjusted annual rate of 5.31 million, the lowest level since April. That’s down from 5.58 million in July, which was the highest in more than eight years.
Solid job growth and low mortgage rates have boosted sales 6.2 per cent in the past year. But the median home price has increased 4.7 per cent during that time, more than double the increase in average hourly pay. That is likely pushing more homes out of reach for many buyers.
Sales will likely remain flat for much of the rest of the year, according to the Realtors’ group and some private economists. The NAR forecasts sales will be 5.3 million this year, the most since the recession.
There were signs of fundamental improvement in the housing market. First-time homebuyers, a critical source of demand, made up 32 per cent of sales last month, up from 28 per cent in July. That is still below historical averages of nearly 40 per cent. And foreclosures and short sales — where the seller owes more than the house is worth — fell to the lowest level in nearly seven years.
“Given stronger job growth, and low rates that are going to be sticking around for at least a little while longer, the U.S. housing market is still in good shape,” Jennifer Lee, an economist at BMO Capital Markets.
Still, Americans looking to purchase a home also have fewer to choose from: The number of available homes has fallen 1.7 per cent in the past 12 months to just 2.29 million. That is equivalent to 5.2 months of supply at the current sales pace, below the six months that is typical of a balanced market.
The competition among buyers also pushes prices higher.
Sales fell in the South and West, areas with the steepest price appreciation. Sales were unchanged in the Northeast, where price gains were smallest. They slipped in the Midwest.
Home sales may remain steady in the coming months because Federal Reserve policymakers last Thursday decided against raising the short-term interest rate they control. The Fed has held its benchmark rate at nearly zero since December 2008 in an effort to spur more borrowing and spending.
That has kept mortgage rates quite low for most of the six years since the recession. The rate for a 30-year fixed mortgage averaged just 3.9 per cent nationwide last week, according to mortgage buyer Freddie Mac. Home sales had plunged to an annual rate of just 4 million when the Fed pegged its rate to zero.
Still, it’s not clear that a rate hike by the Fed — which may come at its next meetings in either October or December — will have that great an impact on sales, at least in the short run.
The Fed’s moves only have an indirect impact on mortgage rates, which tend to follow the yield on the 10-year Treasury note. That yield is heavily influenced by overseas demand. Many international investors consider Treasurys a safe haven, and steady buying from overseas will likely keep the 10-year yield, and mortgage rates, low even when the Fed does start to lift off.
Nela Richardson, chief economist at real estate broker Redfin, says most home buyers aren’t likely to be deterred by a small increase in mortgage rates. More buyers are worried about qualifying for a mortgage to begin with.
“People are not that concerned that a rate hike will torpedo their plans to buy a house,” Richardson said.