Sales of existing homes fell 1.5 percent in September from the month before, according to the National Association of Realtors (NAR), marking eight straight months of declines and a 23.8 percent plunge from 2021.
The release of the NAR report Thursday coincides with another uptick in the 30-year fixed-rate mortgage, which is now just under 7 percent.
Reports of softening in the housing market are widespread, with some in the industry saying they are already in a recession. But the $43.4 trillion question — which is the value of the U.S. housing market, according to real estate platform Zillow — is when these headwinds will begin to significantly bring down prices, and the NAR report showed some progress.
While the median price of an existing home ($384,800) is still up 8.4 percent from a year ago, it's fallen for three consecutive months.
In addition, three out of four major U.S. regions reported a drop of least 1.6 percent in sales, with the notable exception of the West, which remained unchanged.
However, lower prices don't expand the number of houses on the market, and limited supply is still a big reason prices are higher in the first place.
NAR reported that the inventory of unsold existing homes fell for the second consecutive month to 1.25 million, which it said is enough to keep up with demand for 3.2 months if the current rate of sales continues. This is up from 2.4 months worth of supply in September 2021, but homebuyers are still facing a tight market.
"Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory," said NAR Chief Economist Lawrence Yun in a press release. "The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today."
At the macro-level, Federal Reserve interest rate hikes are pushing up mortgage rates, which in theory should continue to curb demand and thus further bring down prices.
The average 30-year fixed-rate mortgage ticked up to 6.94 percent from 6.92 percent last week, according to Freddie Mac. The mortgage buyer noted that this is more than double the average rate a year ago, which stood at around 3 percent — though the rate of increases is beginning to slow.
"Mortgage rates slowed their upward trajectory this week," said Sam Khater, chief economist for Freddie Mac in a news release. "The 30-year fixed-rate mortgage continues to remain just shy of seven percent and is adversely impacting the housing market in the form of declining demand. Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down."
Nadia Evangelou, senior economist for NAR, explained that 7 percent mortgage rates were normal in the mid-to-late 1990s and early 2000s. The difference is that the home ownership rate was higher then — 67 percent compared to the current rate of 65.8 percent — and inflation was much lower.
"While inflation outpaces wage growth, the typical family needs to stretch out its budget and spend more than 25% of its income on its mortgage payment," she wrote. "Nevertheless, between 1995 and 2002, mortgage payments accounted for 20% of income."
