Sales of existing homes in the US dropped more than expected in September as the market continues to show signs of weakness in Q4. Land and labor shortages continue to hinder progress, with cheaper homes in particular remaining in high demand. Sales fell -2.2% vs. Just -0.7% expected.
- Existing home sales in September fell -2.2% at 5.38 million units vs. a drop of -0.7% expected.
- August’s pace of sales was upwardly revised to 5.5 million units.
- Interest rates have been cut twice in 2019, stimulating the housing market, but the sector still shows signs of weakness.
5.38 million units were sold last month vs. 5.45 million expected, representing a major and unexpected drop in sales. While borrowing costs have been cut twice in 2019 and the rate of a 30-year fixed mortgage has fallen 125 basis points since the November 2018 peak, the market continues to drag its feet with sluggish sales. The average interest rate on a 30-year fixed mortgage is now 3.69% according to mortgage finance agency Freddie Mac.
While home sales have seen some spikes throughout the year, the overall trend remains uninspiring. A lack of properties on the market has kept prices high despite monetary easing policies from the government aimed at making the market easier to enter for newcomers, limiting affordability.
Existing home sales rose 3.9% last month on an annual basis according to the report from the National Realtors Association (NAR). Sales dropped in all four regions last month, led by the Midwest with -3.1% decline and the Northeast which fell by -2.8%. Sales in the populous South dropped -2.1%, and sales in the West fell by a more modest -0.9%.
It would take four months to clear the current inventory based on September’s pace of sales, down from 4.4 months last year. A supply of six to seven months is generally viewed as the ideal balance between supply and demand. The number of homes on the market last month dropped -2.7% annually, the fourth consecutive month of annual declines.
Existing home sales fell back but from a tough comparison against a strong August, down 2.2 percent in September to a 5.380 million annual rate that is at the low end of Econoday's consensus range. pic.twitter.com/XU4yf1q9K8
— Econoday, Inc. (@Econoday) October 22, 2019
Last week’s data showed a major decline in homebuilding which fell from a 12-year high, although this was largely due to weak activity in the volatile component of multi-family units. The median existing house price rose 5.9% from last year to $272,100 in September, representing the largest gain since the start of last year and marking 91 months in a row of annual gains. Chief Economist of NAR Lawrence Yun pointed out that wage growth has failed to keep pace with growth in the price of houses, hindering affordability.
NAR’s Lawrence Yun pointed out that sales remain low despite historically low mortgage rates. High mortgage rates had previously been credited with the lack of sales in the market.
“We must continue to beat the drum for more inventory,” said Yun in the report. “Home prices are rising too rapidly because of the housing shortage, and this lack of inventory is preventing home sales growth potential.” The median price for existing homes last month was $272,100, up 5.9% from this time last year.
Gold is down -0.20% on the day. Spot gold last traded at $1,483.80/oz with a high of $1,488.97/oz and a low of $1,481.72/oz. Gold prices may have faced downward momentum despite the dip in home sales due to unexpectedly strong activity in the manufacturing sector reported by the Richmond Fed.