Home prices decline at rates seen close to a decade ago

In August, existing homes sales fell 0.4%, marking the seventh straight month of declines and sliding 20% from the same month a year ago. Year-over-year sales dropped from $5.99 million in August 2021 to 4.8 million in 2022.

Meanwhile, the median home price, while still rising 7.7% in August on a year-over-year basis, fell 6% in the past two months. After reaching a record all-time high of $413,800 in June, it dropped to $389,000 in August.

Rate of home price decline

One average, cumulative two-month declines generally tends to be in the 2% range, said NAR Chief Economist Lawrence Yun during a Q&A with reporters after the report was released.

“So that cumulative 6% decline is certainly unusual,” said Yun.

The last time it fell by more than 6% over two months was in September 2013 when it fell by 6.5 %, according to NAR data shared with USA TODAY.

Climbing mortgage rates

“The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve’s interest rate policy changes,” said Yun. “The softness in home sales reflects this year’s escalating mortgage rates.

Mortgage rates went from 2.87% for a 30-year fixed mortgage the week ending August 26, 2021 to 5.5% the week ending August 25, 2022, according to Freddie Mac.

“Mortgage rate always has the biggest impact on home sales,” said Yun. “So one can have a job creating environment, but the higher mortgage rate clearly knocks off the home buying potential.”

As prices continue to decelerate, Yun said he would not be surprised if there’s only 3% or lower year-over-year increase in median prices by December.

Housing inventory

Total housing inventory in August stood at 1,280,000 units, a decrease of 1.5% from July and unchanged from the previous year. Unsold inventory sits at a 3.2-month supply at the current sales pace, up from 2.6 months in August 2021.

“Inventory will remain tight in the coming months and even for the next couple of years,” Yun added. “Some homeowners are unwilling to trade up or trade down after locking in historically-low mortgage rates in recent years, increasing the need for more new-home construction to boost supply.”