But these sales occurred during the “Fed pivot” fantasy that pushed mortgage rates down to 5%. Now mortgage interest rates are close to 6.5%.
By Wolf Richter for WOLF STREET.
In July and up until mid-August, mortgage rates fell sharply from the 6% range in mid-June, amid the widespread fantasy of a “pivot” by the Fed for rate hikes. In mid-August, the average 30-year fixed mortgage rate was down to 5%. Yesterday they were at 6.47%. But the brief interlude of falling mortgage rates slowed the decline in home sales – sales fell again in August from July, but at a slower rate – with real estate agents in mid-August talking about the market waking up again.
But prices fell back for the second month in a row, and by a large margin, amid extensive price reductions, and that also helped get some deals done.
The median price of existing single-family homes, condos and condominiums whose sales closed in August fell a whopping 3.5% in August from July, the biggest month-over-month percentage drop since January 201[ads1]6, following a 2.4% drop the previous month , to $389,500, according to National Association of Realtors. Although there is some seasonality involved, the percentage drop was much larger than normal in August, reducing the year-over-year price increase to 7.7%, down from last summer’s 25% year-over-year increase (data via YCharts ) :
In the west, prices are falling are further advanced, amid dismal sales. For example, in San Francisco and in Silicon Valley, median prices have fallen in recent months — now down year-over-year in San Francisco and Santa Clara County (San Jose) and just a hair in San Mateo County, according to data from the California Association of Realtors.
Sale of existing houses, condos and co-ops across the U.S. fell slightly from July, after plunging 5.9% last month, to a seasonally adjusted annual sales rate of 4.80 million homes, roughly on par with the June 2020 shutdown, according to Realtors Landsforbund in its report. This was the seventh consecutive month of month-on-month decline.
Beyond the lockout months, it was the lowest sales rate since 2014, and down 29% as of October 2020 (historical data via YCharts):
Single-family home sales fell 0.9% in August from July, and by 19% year-over-year, to a seasonally adjusted annual rate of 4.28 million houses.
Sales of apartments and co-ops rose 4% from July to 520,000 at a seasonally adjusted annual rate, down 25% year-on-year.
Compared to last August, sales fell 20%, the 13th consecutive month of year-over-year declines, based on the seasonally adjusted annual sales rate (historical data via YCharts):
Sales by region: On an annual basis, sales fell sharply in all regions. On a month-over-month (mom) basis, you can see a slight increase in two of the four regions:
- Northeast: +1.6% mum; -13.7% on an annual basis.
- Midwest: -3.3% mother; -15.9% on an annual basis.
- South: 0% mum; -19.3% on an annual basis.
- West: +1.1% mother; -29.0% on an annual basis.
Sales fell in all price ranges, but fell most at the low end.
Sales volume has been low because potential sellers are clinging to their aspirational prices from before, when mortgage rates were 3%, and many would rather keep the home off the market or pull it off the market than sell for less, as long as they can. But the price reductions have now taken off for sellers who want to sell.
Price reductions began to rise in May from record lows last winter and spring when sales stalled and mortgage rates rose. In July, they reached the highest level since 2019, according to data from realtor.com. In August, price reductions fell only slightly as sellers perhaps felt that price reductions were less necessary amid the fantasy of falling mortgage rates-Fed pivots in July and August:
Active listings – Total inventory for sale minus properties pending sale – rose to 779,400 homes in August, the highest since October 2020, up 27% from a year ago, according to data from realtor.com:
The Swedish Association of Estate Agents is calling for more detached houses. But house builders, the are having trouble selling the homes they have already built or are building, sales have plunged, inventory has risen to its highest level since 2008, and homebuilders have begun cutting prices, buying down mortgage rates and piling on other incentives to get inventory moving. .
Investors or other home buyers bought 16% of homes in August, up from 14% in July, but down from 17-22% in the spring and winter, according to NAR data.
“All-cash” buyerswhich includes many investors and other homebuyers, remained at 24% of total sales, down from a share of 25% to 26% April to June.
Moving forward: holy-moly mortgage interest rates. After the fantasy drop from 6% in mid-June to 5% in mid-August, mortgage rates are now solidly above 6%.
The daily target for the average 30-year fixed mortgage rate is 6.47%, according to Mortgage News Daily.
According to Freddie Mac’s weekly measure, released last week, based on mortgage rates early last week, it rose to 6.02%, more than double a year ago. These 6% plus mortgage rates are still very low, considering that CPI inflation is over 8%. But they catch up.
And potential sellers who hung on to their homes in July and August because they didn’t want to meet the price where the buyers were—hoping the “pivot” fantasy would push mortgage rates down even further—are now facing the effects of these 6%-plus mortgage rates:
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