Existing home sales edge lower in August

Summary

Home Buyers Jump on Lower Rates

• Existing home sales declined 0.4% in August, beating market consensus for a 2.3% drop. The better-than-expected outcome was likely owed to buyers jumping at the chance to lock in slightly lower mortgage rates. The average commitment rate for a 30-year fixed rate conventional mortgage was 5.2% in August, down from 5.4% in July.
• Elevated mortgage rates and increased economic uncertainty appear to be holding back both home buying and selling. After increasing in each of the past five months, total housing inventory declined 1.5% to 1.28 million during August, a level that is unchanged compared to the same month last year.
• Sellers, the vast majority of whom hold a mortgage with a rate under 5%, do not appear enthusiastic about trading to a new mortgage with a higher rate. This phenomenon is likely to keep inventories low and be supportive of home prices for the foreseeable future.
• Median existing home prices remained 7.7% above prior year levels, although prices have retreated over the past two months after reaching a record high in June. Further monthly drops seem likely as sellers reassess the current demand environment; however, low existing supply is likely to limit the extent of depreciation.
• The slight dip in mortgage rates which occurred in late July and early August temporarily boosted sales, but financing costs have moved up markedly since. Mortgage rates recently jumped to 6.02%, the highest since 2008, on higher-than-expected inflation and the anticipation for more hawkish monetary policy in response.
• Mortgage applications for purchase have been positive in two of the first three weeks of September. Sharply higher rental rates may be convincing buyers to move ahead with a purchase. The shock of September's leg up in mortgage rates may lead prospective buyers to back away once again, however.

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