September Existing Home Sales: Rapid Reaction

  • September existing home sales fell 4.1 percent from a year ago and 3.4 percent from August, to 5.15 million sales (seasonally adjusted), according to the National Association of Realtors.
  • The median (seasonally adjusted) price of existing homes sold in September was $258,600, up 4.6 percent from a year earlier — marking the 79th straight month of year-over-year gains.
  • Inventory stood at 1.79 million existing homes for sale, down 0.9 percent from August and up 1.1 percent from a year ago.

Some of today’s sluggishness in existing home sales can be blamed on the hurricanes that hit the Southeast in September, but there are clearly more fundamental changes at play as well. After years of intense pressure driven by limited supply and rampant demand, it’s clear that much of the starch has been taken out of the existing home sales market over the past year.

For a while, inventory was the main scapegoat for sales volumes that failed to launch, under the theory that it’s hard to buy meaningfully more homes when there are significantly fewer homes actually available for sale. But that argument is harder and harder to sustain with every passing month, with nationwide inventory declines slowing dramatically and the number of homes for sale actually on the rise in many large markets.

Instead, recent sluggishness seems increasingly driven by softer demand from would-be home buyers in the face of two emerging trends: Falling rents and rising mortgage interest rates. As rents surged in recent years, many renters sought refuge in the homeownership market, attracted by the stability of long-term payment schedules and rock-bottom interest rates that helped keep those payments themselves incredibly low. With rents stabilizing, that sense of urgency may be diminished somewhat – and renting itself may be seen as a better bargain as rising mortgage interest rates, still-rising home prices and sluggish wage growth dent the affordability advantage of a typical mortgage.

It all adds up to a situation in which supply-side factors are becoming less critical in driving home sales as they give way to softening demand. There’s still a lot of energy left in the housing market, but the rapid rise of the past few years has clearly begun to level off.