The Economy

Where Home Sales Go From Here Is Anyone’s Guess

Higher borrowing costs are starting to offset the effects of a strong economy, but house prices are still rising.
William SprouseSeptember 22, 2018
Where Home Sales Go From Here Is Anyone’s Guess

Sales of existing homes in the United States were unchanged in August at a seasonally adjusted rate of 5.34 million units, the National Association of Realtors said this week. The group reported 1.92 million existing homes for sale at the end of August, up from 1.87 million a year ago.

The slowdown has been driven by a shortage of houses priced at less than $250,000, the level considered affordable for the middle class. Sales of homes priced between $100,000 and $250,000 have declined 1.7% in the past year. Meanwhile, homes priced at more than $500,000 have seen increasing momentum. Sales of homes worth more than $1 million have increased 11.8% in the last year.

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The flat sales follow four straight months of declines.

Economists polled by Reuters said they expected an increase of 0.3% for the month. Sales of existing homes, which make up 90% of the U.S. market, have fallen 1.5% in the past 12 months.

home salesThe median sales price increased 4.6% in August year-over-year, to $264,800. It was the fourth consecutive month that the median price rose less than 5%.

The slowdown in existing home sales is gradually pushing up housing inventory. At August’s sales pace, it would take 4.3 months to clear the current inventory, up from 4.1 months a year ago. A supply of six to seven months is viewed as a healthy balance between supply and demand.

Lawrence Yun, NAR chief economist, said that “with inventory stabilizing and modestly rising, buyers appear ready to step back into the market.”

But others are not so sure.

“A strong economy is no longer enough to prop up home buying demand,” said Cheryl Young, a senior economist at Trulia. “Home buyers are sensing that the market is near or at an apex and many are pulling back to see when prices may finally begin to tip in their favor.”

Increasing borrowing costs have played a part in slowing sales.

Mortgage buyer Freddie Mac said the average 30-year fixed-rate mortgage had an interest rate of 4.65% this week, up from 3.83% a year ago.

The Federal Reserve’s Open Market Committee is expected to increase rates again next week after its policy meeting.

Photo: Getty Images