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Sales of previously owned homes slumped last month, as buyers remained on the sidelines despite lower mortgage rates.
Total existing-home sales dropped 2.5% from July, to a seasonally adjusted annual rate of 3.86 million in August, the National Association of Realtors® reported on Thursday. The August sales figure, which excludes new construction, represented a 4.2% drop from one year ago.
Still, prices continued to rise, with the $416,700 median sales price in August up 3.1% from a year ago, the 14th consecutive month of annual price increases. Home prices did dip slightly from the prior month, following typical seasonal trends, but it marked the highest median August sales price on record.
The lower sales figures came despite falling mortgage rates, which averaged 6.5% in August, according to Freddie Mac. That was down from a 6.8% July average, and 7.6% in October 2023, when rates reached a 23-year high. Mortgage rates have dropped in anticipation of the Federal Reserve’s cuts to the benchmark interest rate, which began on Wednesday with a big half-point reduction.
The supply of homes for sale also continued to improve, with 1.35 million homes on the market. That was up 0.7% from July, and a 22.7% increase from a year ago. Still, it represented a supply of 4.2 months at the current sales pace, less than pre-COVID levels and short of the six months that economists consider adequate for a balanced market.
NAR Chief Economist Lawrence Yun said he believed it will take time for lower mortgage rates to translate into closings, as buyers work through the home buying process.
“The home buying process takes several months, so the positive influencing factor of mortgage rates and inventory has yet to impact the market, but it will surely impact it in the coming months,” he said on a call with journalists.
Buyers bide their time for right moment to purchase
Though home prices continue to rise, albeit more slowly, there are signs that the market is beginning to turn in favor of buyers. In addition to lower rates and better supply, homes are staying on the market longer now, with days-on-market rising to 26 days in August, up from 24 days in July and 20 days in August 2023.
Bidding wars are also declining, with just 20% of homes selling above asking price in August, down from 31% a year ago, according to NAR data.
As conditions improve, many buyers may be betting that they will improve further, waiting for the right moment to enter the market.
“Although home buyers had more for-sale homes to choose from and increased buying power from easing mortgage rates, it seems that many are waiting for additional improvements,” says Realtor.com® Chief Economist Danielle Hale.
“So far, those buyers who waited, may be glad that they did,” she adds. “Not only have mortgage rates continued to fall into early September, but we’re also nearing a seasonal sweet spot for homebuyers, when competition usually wanes, home prices ease, and time on market tends to grow.”
Hale says the Realtor.com economics team has identified Sept. 29 to Oct. 5 as the best time of the year to buy home, when nationwide seasonal trends are most favorable to homebuyers.
Developing story, more to follow.