The U.S. housing market experienced a slight downturn in September 2023, with previously owned home sales decreasing by 1% from the previous month. This brought the seasonally adjusted annualized sales rate to 3.84 million units, marking the slowest activity since October 2010, according to the National Association of Realtors (NAR). In comparison to one year prior, September sales fell by an even more substantial 3.5%. The sluggishness was evident across three of the four major U.S. regions, with only the West showing any significant improvement in sales figures. This represents a concerning trend for those closely monitoring the market’s recovery trajectory.
One of the driving forces influencing buyer behavior has been the volatility in mortgage interest rates. In July, rates hovered near 7% for 30-year fixed mortgages, before gradually declining to just below 6.5% by the end of August. While this shift in rates offers some relief compared to the previous year—showing a drop of over one percentage point—many potential buyers still seem hesitant. Lawrence Yun, the chief economist at NAR, observed that home sales have maintained a stagnant pace of around four million units for the past year, despite conditions that typically support increased home sales materializing. This indicates that while rates are more favorable, other factors may still deter buyers.
One undeniably positive sign for prospective buyers is the relative increase in housing inventory, which rose by 1.5% month-over-month to 1.39 million homes available for sale at the close of September. This translates to a 4.3-month supply at the current sales pace, significantly higher than the levels seen in September of the previous year, where inventory was up 23%. Yun emphasized that while an uptick in available homes can mitigate some of the pressure on buyers, the stock of distressed properties remains alarmingly low due to a historically low mortgage delinquency rate. In fact, distressed sales made up a mere 2% of all transactions, illustrating the stability of the current homeowners.
Despite the growing inventory, the ongoing pressure of low housing stock has contributed to rising prices. The median sale price for existing homes in September climbed to $404,500, reflecting a 3% increase from the previous year, extending a streak of 15 consecutive months of annual price gains. The phenomenon of cash buyers continuing to dominate the market—composing 30% of September’s sales compared to the pre-COVID average of 20%—further exacerbates this trend. Interestingly, there has been a slight decline in investor activity in the market, with investor purchases falling from 19% to 16% of sales in September.
Challenges for First-Time Buyers
One of the most alarming trends is the retreat of first-time homebuyers, who constituted only 26% of sales in September. This downturn highlights the complexities facing newer entrants in the housing market amidst rising prices and competition from cash buyers. As homes now average 28 days on the market—up from 21 days a year ago—this may indicate a cooling market, but it also complicates matters for those looking to enter homeownership.
The current landscape of the U.S. housing market reflects a mix of stagnation and emerging opportunities. While rising inventory and falling rates may offer hope, obstacles remain for both first-time buyers and those looking to sell in this gradually evolving market.