Sales of homes in the process of being sold dropped last month as home buyers battled the rising cost of living. Learn more about the latest NAR house sales report.
The NAR, the National Association of REALTORS(r), announced on Thursday that the number of contract signings dropped 7.1 percent month-over-month in August. Mortgage rates are hovering over 7%, dragging many prospective buyers of homes to stay off the market. The four main U.S. regions saw monthly declines in the report of NAR. The number of homes for sale is down 19% compared to the previous year. “It’s clear that increased housing inventory and lower interest rates are essential to revive the housing market,” declares NAR chief economist Lawrence Yun.
The mortgage rates have been climbing to 7% or more since August, which has dwindled the number of purchasers, Yun says. “Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets.”
Homebuyers are also grappling with rising home prices. The median cost for a house that’s been in the market increased by about 4 percent from year to year in August and has been at or above $400,000 for the past three months, according to NAR information.
The number of new homes sold, which was an excellent sign of improvement in the market for housing, fell almost 9 percent last month to its lowest level since March. Builders blamed the rise in mortgage rates as well as challenging financing conditions for the decrease.
“Builders continue to grapple with supply-side concerns in a market with poor levels of housing affordability,” says Alicia Huey, chairperson of the National Association of Home Builders. “Higher interest rates price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building.”
Little Relief in Sight
Housing affordability declined in July, as mortgage payments increased by 18.4 percent, as per NAR’s most recent Affordability Index. (At the date of the index’s most recent reading, mortgage rates were 6.92 percent.) However, the median household income only increased by 4.4 percent. The index found that the average family across the country could not afford a median-priced house.
In the last few months, mortgage interest rates have risen to their highest since 2000, causing the demand for loans to drop to a record low of 27 years, according to The Mortgage Bankers Association reported this week.
In its last meeting in Washington, at its meeting last week, the Federal Reserve voted to pause increases in the benchmark interest rate but indicated that it could hike again prior to the close of the year.
“Overall, [mortgage] applications declined as both prospective home buyers and homeowners continue to feel the impact of these elevated rates,” says MBA Economist Joel Kan. Mortgage applications for buying homes last week were 27% lower than similar week one year ago, MBA reports.
“The Federal Reserve must consider the sharply decelerating rent growth in its consideration of future monetary policy,” Yun declares. “There is no reason to increase interest rates. In addition, the shutdown of the government may affect some home sales in the near time because of the Insufficient flood insurance or delays in mortgage insurance that is backed by the government.”