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Sales of existing homes slipped 0.7 percent in August from July and fell 15.3 percent from August 2022, setting their slowest pace since January, the National Association of Realtors (NAR) reported.

Economists surveyed by The Wall Street Journal before the NAR announced the numbers had predicted an increase in sales of 0.7 percent, the same amount by which they declined.

“Home sales have been stable for several months, neither rising nor falling in any meaningful way,” NAR chief economist Lawrence Yun said in a statement announcing August’s figures. “Mortgage rate changes will have a big impact over the short run, while job gains will have a steady, positive impact over the long run.”

Sales have been hobbled by rising mortgage rates, which topped 7 percent earlier this month and averaged 7.64 percent for a 30-year, fixed-rate loan on 25 September, Bankrate reported.

Also, the number of homes up for sale continues to be historically low.

On 31 August, 1.1 million houses were on the market, 0.9 percent fewer than a month earlier and down 14 percent year over year.

That represents a 3.3-month supply. A six-month inventory is considered a balanced market that gives buyer and seller equal negotiating power.

The scarcity of available homes nudged prices higher. August’s sale price averaged $407,100, 3.9 percent higher than in August 2022 and the highest for any August on record. The monthly average also was the fourth-highest ever recorded.

The inventory of homes for sale needs to double before prices will come down in any significant way, Yun said.

August’s sales were weakest at lower price points and flat for homes selling for $1 million or more.

Most homeowners with mortgages are paying lower interest and monthly payments than they would if they bought a new home and are waiting for rates to fall before they sell. Also, many people bought houses in the last two years and have no plans to relocate.

The month’s weakness also infected new home construction. After booming in the spring (see “New Home Sales on the Rise, NAR Says” 2 May 2023), housing starts slowed by 11.3 percent, year over year, to their fewest since June 2020 and notched their steepest monthly decline in a year.

Investment in apartment buildings and single-family homes has shrunk for nine consecutive quarters, Reuters reported, the longest negative run since 2008 as the Great Recession set in.

September’s National Association of Home Builders Wells Fargo Housing Market Index dropped from 50 in August to 45 this month. Ratings below 50 indicate that business activity is slowing. The index had been above 50 since April.

Builders reported having to cut prices and offer other incentives to entice buyers.

“August’s home construction data appear to be showing some cracks in the armor of what has been one of the few strong indicators in the housing market recently,” economist Daniel Vielhaber at Nationwide Mutual Insurance told Reuters.

“Still,” he said, “it’s important to note that there could be a noise component here as much of the sharp decline in starts came from the multifamily sector, which is notoriously volatile.”

Starts for multifamily homes of five units or more plummeted 26.3 percent last month, year on year, the least since August 2020. Multi-family housing construction has been trending down since April 2022, according to Reuters, when skyrocketing rental rates finally became unaffordable for many.

Also, building loans for commercial real estate, including apartment buildings, are becoming harder to find and to qualify for as banks are reining back lending in the face of a weakening market and reserving more cash as shields against an expected increase in bad loans.

However, building permits given for future homes jumped 6.9 percent last month, the most since October 2022. The number of permits for single-family homes grew by 2 percent, while those for apartments shot up 14.8 percent.

TREND FORECAST: Average housing prices will, at worst, moderately decline as interest rates decline and sales increase. Now that the U.S. Federal Reserve has indicated it plans to keep rates where they are perhaps through next year, prices will remain aloft and houses for sale will remain relatively scarce. The lower down the price ladder potential buyers look, the more competition they will find.

Even when interest rates fall and the number of houses available increases, prices will not decline greatly. Many of the homes coming onto the market will be owned by people shopping for another, negating any net gain in the number of houses available.

Also, Millennials and Gen Z adults continuing in their home-buying years will keep demand strong.

Adding the fact that there is less and less land available to build new houses on, the housing market will remain tight for several years regardless of interest rates, keeping prices well above pre-COVID levels.

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