September saw a sharp decline in the U.S. housing market, with sales of existing homes plummeting to their lowest levels since 2010, according to data released by the National Association of Realtors (NAR). The decline underscores the headwinds faced by potential homeowners, as a combination of rising mortgage rates and surging home prices diminished affordability.
In a month-over-month comparison, sales of previously owned homes shrank by 2% in September, translating to an annualized rate of 3.96 million units. This is a staggering 15.4% drop from September 2022 figures. To put things in perspective, this rate is reminiscent of the housing slump during the Great Recession, particularly in October 2010, which was marred by a foreclosure crisis.
Lawrence Yun, NAR's principal economist, remarked, "Limited inventory combined with low housing affordability have been consistently impeding home sales this year." He added a cautionary note about the Federal Reserve's approach, stating, "In the current climate of moderating inflation and job gains, the Federal Reserve must reconsider its strategy of hiking interest rates."
An overview of the housing market revealed an inventory of 1.13 million homes by September's close, marking an 8% dip from the prior year. Even though there's a modest 3.4-month supply, this marginal improvement from last year is attributed more to the significant sales drop than to any genuine inventory increase.
Adding to potential homeowners' woes, September's median home sale price escalated to $394,300, a 2.8% year-over-year surge. This inflation, coupled with a sparse supply, instigated bidding wars, making approximately 26% of homes sell above their list price.
The property market's prevailing conditions also affected first-time buyers, who constituted a mere 27% of sales, a sharp contrast to the historical average of 40%. Interestingly, despite an overarching decline in sales, higher-priced properties witnessed a lesser slump. The availability of a more extensive inventory in this segment and the financial ability of high-end buyers to opt for cash purchases are probable reasons for this anomaly. As a result, mortgage demand plummeted to levels unseen since 1995, according to the Mortgage Bankers Association.
Moreover, an analysis shows cash sales comprising 29% of all transactions in September, a notable increase from August's 27% and last September's 22%. Reflecting on this trend, Danielle Hale, chief economist at Realtor.com, observed, "While affordability concerns prevail, buyers may have been spurred by the Fed's September forecasts to expedite their purchases. This could herald a further dip in upcoming months' sales activity."
As the Federal Reserve signals a persistence in elevated benchmark rates, market experts predict continued monthly declines in home sales for the remainder of the year. Yun, summarizing the year's outlook, said, "Earlier, we anticipated an annual dip of 10% to 15%. Now, it appears to be closer to 20%."