EconoFACTS

September 21, 2023 | 10:45

Existing Home Sales Slip on Rising Interest Rates and Tight Supplies

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

U.S. existing home sales slipped 0.7% in August to 4.04 mln annualized units, nearly spot-on our 4.05 mln forecast, and down from an unrevised 4.07 mln in July. Higher mortgage rates are adding to the downward pressure on existing home sales. Thirty-year mortgage rates averaged 7.50% in August up from a 7.25% average in July, according to Bankrate.com, while mortgage purchase applications were 8.7% lower in August, according to the Mortgage Bankers Association. All-cash buyers were responsible for 27% of all existing home sales in August, up from 24% a year ago. Single-family sales fell 1.4% last month, while condos/co-ops increased 4.8%. Bad weather, hurricanes and tropical storms in the South and West in August may have also played a role in the modest decline. Home sales dropped 2.6% in the West and 1.1% in the South, while sales in the Northeast were flat and increased 1.0% in the lower-priced Midwest.

Existing housing supply remains tight with 3.3 months of inventory at the current sales pace, unchanged from July. Single-family supply held at 3.2 months, while condos/co-ops supply fell to 3.5 months from 3.6 in July. This allows median existing home prices to continue to rise even as higher mortgage rates push more potential buyers out of the marketplace. Median existing home prices increased to $407.1k in August from $405.7k in July, and are now 3.9% above year-ago levels, the strongest year-on-year home price performance in nine months.

Bottom Line: This was a relatively solid report given the circumstances of rising mortgage rates, limited supply, and bad weather. The Fed rate hikes are having some negative impact on existing home sales, but not enough to harm the U.S. expansion.

Table 1 - United States — Existing Home Sales

(millions of units : a.r.)

Source: BMO Economics, Haver Analytics