The housing market is beginning to look a little more normal.
Home sales dropped in August, both from July and from a year ago, breaking two straight months of increases, according to the National Association of Realtors.
Home purchases have been surging over the past year, which Lawrence Yun, chief economist for NAR, said has been an anomaly. Driving these increases were pent-up demand among potential buyers that built up during the shutdowns and the lifestyle changes people made during the pandemic, all while interest rates remained very low, he said.
But now the effects of those trends are easing up.
“The housing sector is clearly settling down,” said Yun. “Home sales are trying to return to a normal equilibrium after that big surge we saw last year.”
Sales of existing homes, which include single-family homes, townhomes, condominiums and co-ops, fell 2% in August from July, and were down 1.5% from a year ago, according to the report.
But sales are still above the pre-pandemic rate, said Yun. And sales for 2021 year-to-date are 16% higher than in 2020 and up 12% from 2019.
In addition, prices continue to rise.
The median home price in August was $356,700, up 14.9% from a year ago, marking 114 straight months of year-over-year gains in home prices. Just to be clear: a 14.9% annual price increase is not normal, Yun said. Around 3% to 5% is a more typical annual bump in price. But compared to the 20%-plus price growth that NAR reported in past months, this lower price jump shows some narrowing of that gap.
“Sales slipped a bit in August as prices rose nationwide,” said Yun. “Potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory.”
A (slightly) calmer market, but low inventory remains
Inventory stayed stubbornly low in August, continuing to push sales down in the lower end of the market, NAR said.
“High home prices make for an unbalanced market, but prices would normalize with more supply,” Yun said.
Inventory of unsold homes at the end of August was 1.29 million, down 1.5% from July and down 13.4% from last year, according to NAR. Unsold inventory is at a 2.6-month supply at the current sales pace. A balanced market has roughly a six-month supply.
But there are signs of a slightly calmer, if not kinder and gentler, real estate market ahead.
“Overall, we think home sales will remain strong going into next year, but we should see inventory levels continue to slowly trend toward more normal levels and home price appreciation begin to slow over time,” said Ruben Gonzalez, chief economist at Keller Williams.
For wannabe buyers, some of the scariest parts of buying a home last spring and last fall — like waiving inspections and competing against many multiple offers and facing all-cash offers — have eased up, Yun said, citing surveys of NAR agents.
But a typical property is still selling at a swift 17 days on the market, according to the report. In August, 87% of homes sold were on the market for less than a month.
Even as the market settles down, affordability remains a challenge.
The share of buyers purchasing a home who are first-time buyers fell to 29% in August, the lowest rate since January 2019.
“Securing a home is still a major challenge for many prospective buyers,” said Yun. “A number of potential buyers have merely paused their search, but their desire and need for a home remain.”
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