U.S. existing home sales drop 2% in August, pandemic-fueled demand cooling down

U.S. home sales declined in August as supply constricted, suggesting that a surge in house prices and the COVID-19 pandemic-fueled demand is settling down.

The National Association of Realtors on Wednesday reported that sales of previously owned houses fell 2% last month from July to a seasonally adjusted annualized rate of 5.88 million units.

Although existing-home sales, which account for the bulk of U.S. home sales, dropped 1.5% year-over-year, recording the first annual decline in 14 months, sales are up 16% this year compared to the same period in 2020 and remained well above the pre-pandemic levels.

The supply of new homes fell 1.5% to 1.29 million at the end of August, compared to last month. The inventory is down 13% year to year, but it has been steadily shrinking for several months. At the current sales pace, there is a supply for 2.6 months.

Supply constraints increased the median price of an existing home sold by 14.9% to $356,700 in August from a year earlier.

The median is heavily skewed due to strong activity on the higher end of the market as sales of homes priced below $250,000 fell compared to last year, even as sales of houses priced above $1 million jumped 40%.

With higher prices, first-time homebuyers fell to 29% of all sales, the lowest since January 2019. Historically, first-time buyers usually make up 40% of buyers, and last year it accounted for 33%.

Mortgage rates began falling in June from 3.25% down to a low of 2.78% on the popular 30-year fixed by the start of August, according to Mortgage News Daily.

The drop would have helped first-time buyers most, as they tend to have the least wiggle room financially and are the most sensitive to interest rates, but clearly, they are not helping enough.

Picture Credit: CNBC