Home Sales Fell In August Despite Lower Mortgage Rates, More Inventory

A drop in mortgage rates and more homes coming on the market in August wasn’t enough to jolt home sales from their sluggish pace—at least not yet.

Sales of existing homes fell 2.5% in August from July on a seasonally adjusted basis, the National Association of Realtors (NAR) said Thursday. That made for an annual rate of 3.86 million, down 4.2% from the year before. 

That pace of sales was among the slowest ever recorded by the association, comparable with how many homes were being sold in the depths of the Great Recession in 2009, and was the lowest rate for any August since 2010. The drop in sales came despite improvement in two of the major factors that housing economists say have been stopping people from buying houses lately: high mortgage rates and low for-sale inventories. 

The average rate offered for a 30-year mortgage fell to an average of 6.35% by the end of August from 6.78% at the end of July, hitting its lowest in more than a year according to Freddie Mac. Meanwhile, the number of houses ticked up 0.7% over the month to 1.35 million—well above the 1.1 million for sale in August 2023, but far below the inventory of 1.83 million in August 2019 before the pandemic hit. 

Lower Mortgage Rates Could Help, But Only So Much

The slow sales were “a bit of disappointment,” Lawrence Yun, chief economist at the association, said on a conference call with reporters. “Maybe the favorable backdrop—lower mortgage rates, more inventory—will have an impact in the upcoming months.”

Mortgage rates dropped even further in early September as financial markets anticipated the Federal Reserve’s move Wednesday to cut the central bank’s influential interest rate. The Fed’s move to cut the rate by 50 basis points—the bigger of the two rate cut options on the table—puts more downward pressure on rates. In turn, lower mortgage rates give buyers more purchasing power and could improve the housing affordability picture.

Lower mortgage rates could also lessen the “lock-in effect” that’s discouraged people from selling their houses. Today’s rates are much higher than the ultra-low rates many homeowners secured by buying or refinancing during the pandemic, so many homeowners would take a financial hit by giving up their old mortgages and taking out a new one.

But it’s not just high mortgagee rates making housing unaffordable for many would-be buyers. Prices continued to rise in August on a year-over-year basis. The median price of $416,700 was 3.1% higher than the year before.

Investors Are Crowding Out First-Time Homebuyers

To make matters worse for first-time buyers, they face increasing competition from deep-pocketed investors. Investors bought 19% of houses in August, up from 13% in July, while first-time buyers made 26% of transactions, down from 29% in July. Those two groups are often competing for the same lower-priced properties, Yun said.

The trend in August shows “The classic case: investors essentially pushing out the first-time buyers,” he said.

That dynamic has drawn the attention of politicians. Democratic presidential candidate Vice President Kamala Harris has proposed restricting large investment companies from buying single-family houses as part of a series of reforms to make housing more affordable.

Housing Shortage Could Remain a Drag on Market

In the meantime, Yun said he expected sales to rise in the coming months because of how long the homebuying process takes—contracts signed in August, when conditions were more favorable, will show up in future sales statistics.

But falling mortgage rates can only do so much to improve the housing market, which has been plagued by a chronic shortage of homes, Federal Reserve Chair Jerome Powell said in a press conference Wednesday following the central bank’s rate cut announcement.

“We have had, and are on track to continue to have, not enough housing,” he said. “All of the aspects of housing are more and more difficult. And where are we going to get the supply? This is not something that the Fed can really fix.”