Existing home sales fall back in August

Summary

Poor affordability conditions continue to bite

Conditions remain generally poor in the resale market. After improving in July, existing home sales dipped 2.5% in August to a seasonally adjusted annual rate of 3.86 million, nearly returning to the prior cycle low reached in October 2023. Although mortgage rates have retreated meaningfully in recent weeks, rates at the time of contract signings in June and July were still running near 7.0%.

It is likely that mortgage rate improvements since then will serve to spark housing demand in the coming months. However, rates are only one factor holding back sales. Single-family resale prices were up 2.9% year-over-year in August, a slightly lower price hike than in prior months but a solid increase nonetheless. Ongoing price increases pile on top of the hefty price appreciation that has already occurred. At $422,100, the median single-family resale price in August was 50% higher than the $281,900 median value in August 2019. Although inventories have improved over the past year, the overall availability of resale homes remains quite low, helping to keep a floor under price growth.

We expect the Fed's easing cycle will spark further improvements in mortgage rates, but the magnitude will depend on the pace at which the FOMC decides to cut rates. As we wrote yesterday, the cadence of Fed cuts will depend on incoming data and the extent to which the jobs market deteriorates in the coming months. All told, we expect mortgage rates to move lower but remain elevated above 5% through next year.

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