Home sales dip 2.5% in August amid inventory gains and price increases

The U.S. housing market exhibited further signs of deceleration in August as existing home sales declined for the second consecutive month, according to a comprehensive report released Tuesday by the National Association of Realtors (NAR). The data reveals a complex landscape of regional variations, shifting buyer demographics, and persistent affordability challenges.

Sales of previously owned homes, including single-family houses, townhomes, condominiums, and co-ops, fell 2.5% to a seasonally adjusted annual rate of 3.86 million units in August, down from 3.96 million in July. This represents a more substantial 4.2% decrease from August 2023, when sales stood at 4.03 million units. The decline was most pronounced in three of the four major U.S. regions, with only the Midwest holding steady.

Lawrence Yun, NAR's Chief Economist, provided context for the disappointing figures: "Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months." Yun emphasized the time lag in the home-buying process, noting, "The home-buying process, from the initial search to getting the house keys, typically takes several months."

Despite the overall sales decline, the median existing home price continued its upward trajectory, rising 3.1% year-over-year to $416,700. This marks the 14th consecutive month of annual price increases, reflecting sustained demand in certain market segments and highlighting the persistent affordability crisis facing many potential buyers.

A closer look at inventory levels offers a glimmer of hope for buyers. Total housing inventory at the end of August stood at 1.35 million units, a modest 0.7% increase from July but a more substantial 22.7% rise from a year ago. This translates to a 4.2-month supply at the current sales pace, up from 4.1 months in July and 3.3 months in August 2023. The inventory situation, however, remains geographically uneven.

"The rise in inventory – and, more technically, the accompanying months' supply – implies home buyers are in a much-improved position to find the right home and at more favorable prices," Yun explained. "However, in areas where supply remains limited, like many markets in the Northeast, sellers still appear to hold the upper hand."

The report shed light on the ongoing struggles of first-time homebuyers, a crucial demographic for market health. First-time buyers accounted for only 26% of sales in August, matching the all-time low set in November 2021. This figure is down from 29% in both July 2024 and August 2023, reflecting the formidable barriers to entry for many prospective buyers.

The composition of buyers showed interesting shifts. All-cash transactions made up 26% of August sales, a slight decrease from 27% in July and a year ago. Individual investors and second-home buyers, who often make cash purchases, accounted for 19% of homes sold in August, up from 13% in July but down from 16% in August 2023. This fluctuation suggests changing dynamics in investor activity and vacation home purchases.

Properties typically remained on the market for 26 days in August, up from 24 days in July and 20 days in August 2023, indicating a slight easing of the frenzied pace seen in previous months.

The single-family home segment, which comprises the bulk of the market, saw sales decrease 2.8% to a seasonally adjusted annual rate of 3.48 million in August, down 3.3% from the previous year. The median existing single-family home price was $422,100 in August, up 2.9% from August 2023.

Condominium and co-op sales held steady at a seasonally adjusted annual rate of 380,000 units, matching July's figures but down 11.6% from one year ago. The median existing condo price increased 3.5% year-over-year to $366,500.

Mortgage rates continue to play a crucial role in market dynamics. According to Freddie Mac, the average 30-year fixed-rate mortgage stood at 6.2% as of September 12. While this represents a decrease from 6.35% a week earlier and 7.18% a year ago, rates remain significantly higher than the historic lows seen in recent years, impacting affordability and buyer decision-making.

As the market enters the typically slower fall and winter seasons, industry analysts will be closely monitoring how these trends evolve. Particular attention will be paid to whether the combination of potentially lower mortgage rates and increased inventory will be sufficient to stimulate sales activity and improve accessibility for first-time buyers in the coming months.

The August data underscores the complex challenges facing the U.S. housing market, balancing issues of affordability, inventory, regional disparities, and changing buyer demographics against a backdrop of economic uncertainty and shifting monetary policy.