US existing home sales rebounded month-over-month in September for the first time in four months, but the improvement may be difficult to sustain. Mortgage rates have climbed sharply since early September, further weighing on homebuyers' budgets and putting greater pressure on sales activity ahead.
According to data released Tuesday by the National Association of Realtors (NAR), existing home sales rose 1.5% month-over-month on an annualized basis to 3.99 million units in September, above the 3.96 million expected by economists surveyed by Bloomberg. The August figure was revised down to 3.93 million. This marked the first month-over-month increase in existing home sales since May of this year.
However, NAR Chief Economist Lawrence Yun said August and September were the two weakest months for existing home sales this year. As mortgage rates rise further, the number of buyers who can afford to purchase may continue to shrink. Meanwhile, home prices are still climbing, with the median existing home sale price up 1.3% year-over-year in September to $417,500.
Elevated home prices combined with rising financing costs continue to squeeze homebuyers' affordability. The US 30-year fixed mortgage rate has risen by more than 50 basis points since early September to 7.49%. Danielle Hale, chief economist at real estate website Realtor.com, said the rate increase over the past five weeks has reduced purchasing power by more than 6% across all budget tiers. For a buyer with a monthly payment budget of $2,000, the affordable home price has been reduced by about $19,000 as a result.
Sales Rebound Masks Underlying Demand Pressure as Rate Hikes Weigh on Future Transactions
The September rebound in existing home sales does not mean housing demand has stabilized. Some transactions were agreed before the recent sharp rise in mortgage rates and do not fully reflect the impact of higher financing costs. By region, existing home sales in the South and West both rose 2.8% month-over-month, the Midwest was flat, while the Northeast declined, indicating uneven market performance.
Earlier this year, some homeowners began accepting higher market rates, and the "lock-in effect" that had delayed sales as owners were reluctant to give up their existing low-rate mortgages eased somewhat. This helped increase the supply of homes on the market and created conditions for a pickup in transactions. But as mortgage rates have surged again rapidly, buyers' purchasing power has come under strain, and improved supply may not translate into actual completed sales.
Lawrence Yun said existing home transaction activity could slow markedly in the fourth quarter. Higher rates will not only prompt some buyers to postpone their purchase decisions but may also lead to delays in already-signed contracts. He noted that recent contract delays are increasing, further adding to the pressure on future sales.
Stubborn Prices, Rising Inventory Keep Housing Affordability Under Strain
Changes in home prices and inventory also reflect the contradictions facing the market. The median existing home sale price rose 1.3% year-over-year in September to $417,500, extending the year-over-year upward trend since mid-2023. Although high financing costs are dampening demand, home prices have yet to show widespread declines.
On the other hand, housing supply has increased somewhat. Existing homes for sale rose 4.6% year-over-year in September to 1.6 million units, equivalent to 4.8 months of supply at the current sales pace, unchanged from August and still at a more than decade-high level.
However, the increase in inventory has yet to meaningfully improve housing affordability. The NAR housing affordability index fell 1.2% year-over-year, indicating that a typical family's ability to purchase a median-priced home has weakened further. Housing affordability has also become one of the focal points in discussions about the cost of living ahead of the US midterm elections in November.
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