With both home prices and mortgage rates continuing to rise, fewer consumers signed contracts to buy existing homes in August.
So-called pending home sales fell 1.8 percent for the month, according to the National Association of Realtors’ seasonally adjusted index. Sales were down 2.3 percent compared with August 2017. That was the fourth monthly decline in the past five months and the slowest sales pace since January.
Sales have been hampered all year by a very lean supply of affordable listings. Inventories did rise slightly in August, but there is still precious little supply at the entry level, where most of the demand is.
“The greatest decline occurred in the West region where prices have shot up significantly, which clearly indicates that affordability is hindering buyers and those affordability issues come from lack of inventory, particularly in moderate price points,” said Lawrence Yun, chief economist at the NAR.
Pending home sales dropped 5.9 percent in the West month to month and were down a striking 11.3 percent compared with August 2017. Prices in the West, however, are still higher than a year ago, but the gains are shrinking. Prices usually lag sales.
Sales fell 1.3 percent in the Northeast monthly and were down 1.6 percent annually. In the Midwest, sales fell 0.5 percent monthly and 1.1 percent annually. In the South, sales were down 0.7 percent monthly but were 1.3 percent higher than a year ago.
Despite still-low supply of homes for sale, a record high number of Americans believe now is a good time to sell, according to a recent survey by the Realtors. Nearly 77 percent of homeowners surveyed indicated now is a good time to sell, compared with 55 percent a few years ago.
“With prices having risen so quickly, many consumers were deciding to wait to list their homes hoping to see additional price and equity gains,” Yun said. “However, with indications that buyers are beginning to pull out, price gains are going to decelerate and potential sellers are considering that now is a good time to list and bring more properties to the market.”
Sales of newly built homes rose 3.5 percent in August month over month, according to the U.S. Census, which tracks signed contracts. Sales are still, however, well below the historical norms for new construction. Prices for new homes are at near-record levels, as builders contend with higher costs for land, labor and especially materials, thanks to new tariffs on building products. The supply of new homes for sale is far higher, but demand is lower, due to affordability issues.
Mortgage rates rose in August as well and are now nearly a full percentage point higher than they were one year ago. Job creation, however, is stronger as is wage growth, which is pushing more demand for housing. The Realtors expect total sales this year to be 1. 6 percent lower than sales in 2017.
Correction: So-called pending home sales fell 1.8 percent for the month, according to the National Association of Realtors’ seasonally adjusted index. An earlier version misstated the percentage.