The real estate market is facing significant challenges as existing home sales continue to decline sharply, despite lower mortgage rates that momentarily dipped to two-year lows. Recent data from the National Association of Realtors reveals that sales of existing single-family homes, condos, and co-ops reached a seasonally adjusted annual rate of only 3.84 million in September, marking a downturn of 3.5% from a year ago and a staggering 38% decrease from September 2021. This decline is compounded by the fact that actual sales plummeted to about 331,000 homes in September, signaling a major drop in buyer activity. While lower mortgage rates initially encouraged some selling activity, the real market dynamics indicate that high home prices are the main barrier to buyer engagement, leading to demand destruction reminiscent of the previous housing crisis.
The supply side of the market is also experiencing significant fluctuations. Unsold inventory has surged to 1.39 million homes, reflecting a 23% increase from the prior year. Concurrently, the number of months’ supply at the current sales rate has risen to 4.3 months, the highest for any September since 2018. This increase in inventory arises from sellers entering the market, having previously withheld their properties during price peaks. However, the simultaneous drop in buyer interest has created a mismatch between supply and demand, pushing prices up and contributing to market stagnation. Sellers, who previously might have held off in hopes of maximizing their investments, are now looking to offload properties, straining the market further amid dwindling demand.
Notably, the impact of rising mortgage rates cannot be overlooked. While rates briefly fell before the spike that began in October, the real estate market is poised to feel the consequences of these increased rates across the remaining months of the year. The transition in mortgage rates—from a low of 6.14% at the end of September to over 6.9% recently—will likely dissuade further buyer engagement and lead to a deeper contraction in sales. As the trend shows, increased borrowing costs directly correlate to diminished demand, creating a scenario where potential buyers either defer their home purchases or seek more affordable housing options.
Despite the evident correlation between high home prices and low sales figures, the National Association of Realtors continues to attribute market issues to other factors, such as election uncertainty and past inventory shortages. The association’s persistent disregard for the fundamental principle that inflated prices deter buyers plays a critical role in understanding the current demand collapse. The median price of existing homes has skyrocketed by 50% since early 2020, yet the NAR seems reluctant to confront the inconvenient truth that prices must adjust downward to stimulate demand effectively.
At the same time, some segments of the market are beginning to adjust to the prevailing conditions. The median price of single-family homes dropped to $409,000 in September, indicating a period of seasonal decline. Conversely, although condo prices saw a modest decline to $361,600, year-over-year comparisons suggest minimal gains relative to earlier months. This divergence in pricing illustrates the disparate impacts across various housing types, where some metro areas experience dramatic price drops, while others, like New York City, establish new highs. The variability across regions highlights the necessity for localized analysis in understanding market dynamics.
Ultimately, the confluence of high home prices, rising mortgage rates, and stagnant sales signifies a prolonged period of market adjustment. While industry insiders and real estate professionals strategize around incentivizing buyer activity, underlying economic realities must be addressed for any sustainable recovery to take place. As demand continues to falter across all four major U.S. regions, with significant drops in home sales reported, the time for real price corrections may be nearer than anticipated for a market eager for revitalization. Understanding these shifts is crucial in forecasting the future landscape of home buying and selling in America.