Wrapup 2: U.S. home sales post seven straight monthly drop; house price growth slowing

Applied Energetics

21/09/2022 15:57

(Adds details, analyst comments, markets)
    * Existing home sales fall 0.4% in August
    * Median house price increases 7.7% from year ago
    * Housing supply at 1.28 million, unchanged from year ago

    By Lucia Mutikani
    WASHINGTON, Sept 21 (Reuters) - U.S. existing home sales
dropped for the seventh straight month in August as
affordability deteriorated further amid surging mortgage rates
and stubbornly high house prices, though the pace of decline
moderated from prior months.
    The report from the National Association of Realtors on
Wednesday followed news this week that confidence among
single-family homebuilders eroded for the ninth consecutive
month in September, while permits for future homebuilding
tumbled to the lowest level since June 2020 in August.
 urn:newsml:reuters.com:*:nL1N30R14V urn:newsml:reuters.com:*:nL1N30Q191
    The Federal Reserve's aggressive monetary policy tightening,
marked by oversized interest rate increases, has weakened the
housing market considerably. In contrast, other sectors of the
economy, like the labor market, have shown incredible resilience
despite the U.S. central bank's attempts to cool demand.
    "The decline in affordability is by design to some extent,"
said Daniel Vielhaber, an economist at Nationwide in Columbus,
Ohio. "Housing is the most sensitive to changes in the Fed's
interest rate policy, the Fed's goal of slowing economic demand
by raising interest rates starts with home sales."
    Existing home sales slipped 0.4% to a seasonally adjusted
annual rate of 4.80 million units last month. Discounting the
plunge during the spring of 2020 when the economy was reeling
from the first wave of COVID-19, this was the lowest sales level
since November 2015.
    Sales rose in the Northeast and West, but were unchanged in
the densely populated South. They fell in the Midwest, which is
generally considered a more affordable housing region. 
    Economists polled by Reuters had forecast sales decreasing
to a rate of 4.70 million units. 
    The smaller-than-expected decline was likely the result of
contracts signed in July, when mortgage rates retreated after
sharp increases. They slowed further in August, which could
result in home sales eking out some gains in September. 
    But the outlook for the housing market remains dark. Housing
 finance giant Fannie Mae on Wednesday lowered its forecast for
total home sales this year to 5.71 million units from 5.78
million units previously. It now expected home sales to come in
at 4.98 million units in 2023, revised down from the previously
estimated 5.18 million units.
   Stocks on Wall Street traded higher. The dollar rose against
a basket of currencies. Yields on the interest-rate sensitive
two-year Treasury note hit 4% for the first time since 2007.    
    HIGHER MORTGAGE RATES
    The Fed is expected to raise its policy rate by 75 basis
points later on Wednesday for the third time in as many policy
meetings. Since March, the central bank has lifted that rate
from near zero to its current range of 2.25% to 2.50%.
    "We expect the slowdown in housing to continue through 2023
as affordability constraints mount for potential homebuyers, and
considering, too, that refinance activity has been significantly
curtailed by the rise in mortgage rates," said Doug Duncan,
chief economist at Fannie Mae. 
    The 30-year fixed mortgage rate averaged 6.02% last week,
from 5.89% in the prior week, breaking above 6% for the first
time since November 2008, according to data from mortgage
finance agency Freddie Mac.
    Though house price growth has slowed as demand weakened,
tight supply is keeping prices elevated. The median existing
house price increased 7.7% from a year earlier to $389,500 in
August. That was the smallest year-on-year rise since early in
the pandemic. The median house price surged to a record high of
$413,800 in June.
    Rising mortgage rates and home prices since the start of the
year have boosted monthly mortgage payments more than 50%.
    "Home price growth is likely to continue to decelerate, but
the limited supply of homes for sale will likely prevent too
steep a decline," said Nancy Vanden Houten, a U.S. economist at
Oxford Economics in New York. 
    There were 1.28 million previously owned homes on the
market, unchanged from a year ago as the higher borrowing costs
discourage homeowners who locked-in lower rates years ago from
selling their properties. 
    At August's sales pace, it would take 3.2 months to exhaust
the current inventory of existing homes, up from 2.6 months a
year ago. A five-to-seven-month supply is viewed as a healthy
balance between supply and demand. The improvement is mostly
because sales are weakening. 
    Properties typically remained on the market for 16 days, up
from 14 days in July, but down from 17 days last August. Before
the pandemic 30 days on the market was the norm. Eighty-one
percent of homes sold were on the market for less than a month.
    First-time buyers accounted for 29% of purchases, unchanged
from July and a year ago. All-cash sales made up 24% of
transactions, up from 22% from a year ago. Prior to 2020, cash
sales accounted for only 20% of transactions. 
    The NAR attributed the higher cash sales share to people
needing loans to buy a home dropping out of the market.

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 (Reporting by Lucia Mutikani; Editing by Andrea Ricci)
 ((Lucia.Mutikani@thomsonreuters.com))