U.S. home sales experienced a modest uptick in September compared to the previous month, yet continued to recede from levels observed a year ago, underscoring a persistent stagnation in the housing market. Rising mortgage rates and elevated home prices continue to deter a significant portion of prospective homebuyers, even as inventory shows signs of improvement, offering a nuanced picture of current market conditions.
Sales Performance and Historical Context
Sales of previously occupied U.S. homes increased by 1.5% last month from August, reaching a seasonally adjusted annual rate of 3.99 million units, according to the National Association of Realtors (NAR). This monthly rise was partially influenced by a downward revision of August’s sales figures. Despite the sequential gain, sales registered a 2.2% decline when compared to September of the previous year. The latest sales tally slightly surpassed economists’ expectations, which stood at a 3.98 million pace, as reported by FactSet. However, the market remains significantly below its historic norm, which typically hovers closer to 5.2 million units annually. September marked the second consecutive month that the annual sales pace remained below the 4 million threshold, a level the market has largely struggled to consistently exceed since 2023. This persistent underperformance highlights the ongoing challenges faced by the housing sector.
Persistent Price Appreciation
Concurrently with the sales trends, home prices continued their upward trajectory nationwide. The U.S. median sales price climbed 1.3% in September from a year earlier, reaching $417,500. This figure represents an all-time high for the month of September, based on NAR data extending back to 1999. The consistent appreciation in home values is further highlighted by the fact that prices have now risen on an annual basis for 39 consecutive months, indicating sustained demand or limited supply despite the overarching affordability challenges confronting many potential buyers.
Mortgage Rates: The “New Normal”
The U.S. housing market has been in a pronounced slump since 2022, a period that coincided with a sharp ascent in mortgage rates from their pandemic-era lows. Last year, sales of previously occupied U.S. homes were essentially flat, stuck at a 30-year low. This year, the rut has deepened, largely attributable to escalating borrowing costs. Mortgage rates have marched higher in the months following the onset of the war between the U.S. and Iran in late February. Expectations of higher inflation, fueled by surging oil prices, have pushed up the long-term bond yields that lenders use as a guide for pricing home loans, consequently driving mortgage rates upward. The average rate on the benchmark 30-year mortgage recently hit 7.4% last week, marking its highest level in nearly three years, a significant jump from briefly below 6% before the conflict began. Lawrence Yun, NAR’s chief economist, characterized the current environment, stating, “This is a very tough market out there, especially with mortgage rates rising.” He further cautioned that mortgage rates are unlikely to see a meaningful decline in the near future, citing ongoing uncertainty over oil prices, geopolitical tensions, and the expanding U.S. government debt as primary drivers. Yun advised prospective homebuyers to consider mortgage rates at 7%, or slightly above, as “the new normal.”
Expanding Inventory and Market Balance
The sharp increase in mortgage rates, which can add hundreds of dollars monthly to borrowers’ costs, has compelled many potential homebuyers to defer their purchasing plans. This shift in buyer behavior has, however, led to an expansion in available housing stock. For those buyers who can afford current rates or are able to pay in cash, there is now a considerably wider selection of homes than in recent years, as properties remain on the market for longer durations. At the end of last month, there were 1.6 million unsold homes, marking the highest level of unsold inventory on the market since November 2019, according to NAR. This unsold home inventory rose 1.9% last month from August and climbed 4.6% from September last year. September’s month-end inventory translates to a 4.8-months’ supply at the current sales pace. This figure places the market squarely within the traditional definition of a balanced market, which is typically considered to be a 4- to 6-month supply, indicating a more even playing field between buyers and sellers after years of tight supply.
Emerging Buyer Leverage
The evolving market dynamics, characterized by increased inventory and longer market times, are beginning to grant home shoppers potentially greater leverage in negotiating terms with sellers. This is particularly true for properties that have lingered on the market without attracting offers for weeks or months. Supporting this trend, the national median home listing price registered a 1.2% decline from a year earlier, settling at $419,250, according to Realtor.com. Furthermore, approximately 21% of listings saw their initial price lowered, as also reported by Realtor.com, signaling a clear shift in seller expectations. Lawrence Yun affirmed this shift, stating, “The market is clearly tilting in favor of buyers able to negotiate for better prices.”
While the U.S. housing market continues to grapple with the dual pressures of high mortgage rates and persistent home price appreciation, September’s data reveals a complex landscape. The slight monthly sales increase, coupled with expanding inventory and a more balanced supply-demand ratio, suggests a market in transition. For many, affordability remains a significant hurdle, yet for those with financial resilience, the current environment presents emerging opportunities for negotiation and a broader choice of properties, signaling a gradual recalibration from the frenzied conditions of previous years and potentially setting the stage for future market adjustments.
