In September 2023, the U.S. real estate market experienced a notable downturn in the sales of previously owned homes. According to the National Association of Realtors, existing home sales plummeted by 1%, landing at a seasonally adjusted annualized rate of 3.84 million units. This decline marks the slowest sales pace since October 2010, revealing a concerning trend for both sellers and potential buyers. The downturn reflects a 3.5% dip compared to the numbers from September 2022, indicating a persistent stagnation in the housing market.
The decline in home sales is not merely a localized issue but spans across three out of four U.S. regions. Only the Western region exhibited growth, which signals a potential anomaly in an otherwise grim national outlook. It’s important to recognize that these statistics are based on closings, which represent contracts that were likely signed in the preceding months of July and August, illuminating the lagging effects of market conditions.
A significant factor contributing to the stagnation is the fluctuations in mortgage rates. After starting July near 7% for a 30-year fixed mortgage, rates began a slow descent, closing August just below 6.5%. Compared to the previous year, current rates are more than a full percentage point lower, which might usually stimulate buying activity. However, the reality remains that sales activity has remained stubbornly flat around the four million unit threshold over the past year.
Inventory levels saw a minor uptick of 1.5% month-over-month, culminating in 1.39 million homes available for sale by the end of September. This increase translates to a 4.3-month supply at the current sales pace, coupled with a more ample 23% rise in inventory from last September. As Lawrence Yun, chief economist for the National Association of Realtors, noted, the added inventory can lend a hand to homebuyers, giving them more options before finalizing their purchases. However, the abundance of listings is somewhat overshadowed by the persistent lack of distressed properties. The mortgage delinquency rate remains low, resulting in distressed sales accounting for only 2% of total transactions.
Despite rising inventory levels, home prices continue to escalate, primarily due to the still-low inventory of available homes. The median price for an existing home reached $404,500 in September, marking a year-over-year increase of 3%. This increase marks the fifteenth consecutive month of annual price rises, demonstrating a peculiar condition where prices inflate even amid declining sales volume.
Cash buyers, who typically wield greater purchasing power in competitive markets, represented 30% of September sales—a significant increase from the 20% seen before the pandemic. Interestingly, the proportion of sales from investors has slightly declined, now representing 16% compared to 19% the previous month. Meanwhile, first-time buyers continue to struggle, constituting just 26% of total sales. The average time a home sits on the market has lengthened to 28 days, which is notably longer than the 21 days recorded a year ago.
Overall, the housing market is navigating a complex landscape that reveals stark contrasts; while inventory is inching up and prices remain elevated, sustained buyer hesitancy and fluctuating mortgage rates highlight a market caught in indecision, impacting both potential homeowners and the broader economy.