- Resale homes sales rebounded in September.
- The increase in sales is due to the rise in interest rates.
- Economists expect rates to increase next year.
The National Association of Realtors said existing home sales were up 7% compared to August at a seasonally adjusted annual rate of 6.29 million units. That was stronger than the 6.11 million units economists expected, according to FactSet.
Change in statistics
Sales were down 2.3% compared to September last year, a time when home purchases increased as buyers who had been delayed during the first months of the pandemic came back in force.
“The increase in sales in the last month would be attributed to mortgage rates,” said Lawrence Yun, chief economist at NAR. “This fall season looks to be one of the best fall home sales seasons in 15 years.”
The rise in mortgage rates
Yun noted that a drop in mortgage rates in August gave buyers an urgency to close home deals, which resulted in September’s sharp increase in completed transactions. While the average rate for a 30-year mortgage remains near record lows, it has been slowly climbing since August, when the weekly rate averaged 2.77%, according to mortgage buyer Freddie Mac.
This week, the average rate rose to 3.09%, the highest level since April, when it peaked at 3.18%. A year ago, the rate averaged 2.8%. When mortgage rates go up, prospective homeowners have less purchasing power.
More first-time buyers
Economists expect mortgage rates to rise as much as 4% next year as the Federal Reserve takes steps to control rising inflation. The central bank is expected to announce a timetable for reducing its monthly bond purchases at its policy meeting next month. Those bond purchases have helped keep mortgage rates ultra-low for much of the past 18 months.
Median home prices jumped to $ 352,800 last month, a 13.3% increase from September last year. Rising prices continued to weigh on first-time buyers, who accounted for 28% of all sales last month. That’s the lowest level since July 2015, the NAR said.
Cash purchases increase
Homes bought for cash increased 23% in September from the previous month. Individual investors, who account for a lot of cash sales, accounted for 13% of all home sales last month.
Despite the sharp increase in sales last month, there are signs that the housing market frenzy that drove 20% to 25% annual increases in median home prices is slowing down. Properties on the market are getting fewer multiple offers and buyers are increasingly refusing to give up their right to a home inspection or appraisal, Yun said.
Home Inventory Still Tight
Still, the housing inventory on the market remains tight across much of the country, which continues to support higher prices. At the end of September, the inventory of unsold homes stood at just 1.27 million homes for sale, 0.8% less than the previous month and 13% less than a year ago. At the current sales pace, that equates to a 2.4-month supply, down from 2.7 months last year, the NAR said.
Homes continue to sell within days of being listed. Homes typically stayed on the market 17 days before being bought last month. That has been stable for the past six months. In a market that is more balanced between buyers and sellers, homes typically stay on the market for 45 days. In total, 86% of homes sold last month were on the market for less than 30 days.
2022: a better year for the market
The inventory of homes for sale should start to improve next year as builders continue to ramp up construction and the end of mortgage forbearance programs forces homeowners in financial distress to put their homes up for sale, Yun said.
“The days when inventory was down 20% or 25%, those days are over,” Yun said. “The decline is decreasing and soon in 2022 we will start to see that inventories are higher year after year.”