Home sales decline for eight straight months as affordability is still a significant issue

October 31 - November 6, 2022

By The Daily Record Staff

Housing sales in Arkansas and across the U.S. continued to fall amid rising mortgage interest rates in September as prospective buyers remain on the sideline waiting for stubbornly high home prices to fall.

According to the National Association of Realtors (NAR) highly watched monthly report, existing-home sales descended in September, the eighth month in a row of declines. Three out of the four major U.S. regions notched month-over-month sales contractions, while the West held steady. On a year-over-year basis, sales dropped in all regions.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, retracted 1.5% from August to a seasonally adjusted annual rate of 4.71 million in September. Year-over-year, sales waned by 23.8% (down from 6.18 million in September 2021).

“The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%,” said NAR Chief Economist Lawrence Yun. “Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales.”

Total housing inventory registered at the end of September was 1.25 million units, which was down 2.3% from August and 0.8% from the previous year. Unsold inventory sits at a 3.2-month supply at the current sales pace — unchanged from August and up from 2.4 months in September 2021.

“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” Yun added. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”

Median U.S. home prices at nearly $385,000

The median existing-home price for all housing types in September was $384,800, an 8.4% jump from September 2021 ($355,100), as prices climbed in all regions. This marks 127 consecutive months of year-over-year increases, the longest-running streak on record. It was the third month in a row, however, that the median sales price faded after reaching a record high of $413,800 in June, the usual seasonal trend of prices trailing off after peaking in the early summer.

Properties typically remained on the market for 19 days in September, up from 16 days in August and 17 days in September 2021. Seventy percent of homes sold in September 2022 were on the market for less than a month.

First-time buyers were responsible for 29% of sales in September, unchanged from August 2022 and slightly higher than 28% from September 2021. NAR’s 2021 Profile of Home Buyers and Sellers — released in late 2021 — found that the annual share of first-time buyers was 34%.

All-cash sales accounted for 22% of transactions in September, down from 24% in August and 23% in September 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 15% of homes in September, down from 16% in August, but up from 13% in September 2021.

Distressed sales — foreclosures and short sales — represented 2% of sales in September, a marginal increase from 1% in August 2022 and September 2021. According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.11% in September, up from 5.22% in August. The average commitment rate across all of 2021 was 2.96%.

Housing affordability a major challenge, Zillow says

Realtor.com’s Market Trends Report in September shows that the largest year-over-year median list price growth occurred in Miami (28.3%), Memphis (27.3%) and Milwaukee (7%). Phoenix reported the highest increase in the share of homes that had their prices reduced compared to last year (32.3%), followed by Austin (27.4%) and Las Vegas (20.0%).

Meanwhile, housing affordability is the worst it has been in several years, and many buyers are pulling back, hoping relief is around the corner, according to new analysis by Zillow Inc. An Oct. 20 report by the West Coast real estate analytics firm shows home values are 24.7% above where they would need to be for affordability to return to recent norms. A shock of this size is extremely unlikely, so buyers may need to reset their expectations. 

The monthly mortgage payment on a typical U.S. home is about $1,850 — that is 75.5%, or about $800, higher than it was a year ago. Home values have fallen a bit since the peak in June but rising mortgage rates have overwhelmed those small affordability gains. Mortgage affordability — the share of income a median household would need to spend on a typical mortgage payment — has risen to 30.2% nationally, even before including the cost of taxes and insurance. That is above the 30% threshold for households to be considered cost-burdened, and much higher than the 2005–2021 average of 22.8%. 

“The next several years appear set up for affordability to be a major challenge for home buyers,” said Zillow senior economist Nicole Bachaud. “Inventory remains tight, real income growth is dismal, mortgage rates show no signs of dropping, and there is plenty of pent-up demand ready to bid prices back up if they reach a level would-be buyers can once again afford. Filling the housing deficit continues to be the key to long-term affordability, but the recent slowdown in single-family construction is not a good sign that the market is getting closer to building enough to meet demand.”

For mortgage affordability to return to the 22.8% norm nationally, U.S. home values would need to fall 24.7%. Some markets are much closer to their historical affordability norms, but others have seen affordability deteriorate much more. Salt Lake City, Nashville, Dallas and Las Vegas are far from their historical affordability, at least 37% above where they would need to be to reach that level again. 

Far from a significant drop, Zillow’s home value forecast calls for home values to remain nearly flat in the 12 months ending September 2023. It would take a sharp increase in inventory for home values to fall dramatically. That is simply not the case right now. Overall inventory is ticking up, but it remains nearly 40% below pre-pandemic levels and is nowhere near a glut that would put the market in a position for significant price drops. 

New listings are coming onto the market at a mere trickle, down 16% in September compared to a year prior. In 2022 to date, there have been about 11% fewer homes listed than at this point in 2019. Many homeowners have mortgages with low rates from purchasing or refinancing earlier in the pandemic and have little financial incentive to sell while mortgage rates are this high. Most also have significant home equity, which makes it unlikely that many properties will be forced into distressed sales, like many were during the Great Recession. 

The housing market slowdown is being driven by discouraged buyers pulling back as their budgets are stretched. According to Zillow analysts, some buyers have been priced out of today’s market, but those who are waiting for affordability to improve will likely have a long wait ahead of them. If home values continue to fall, buyers will likely reenter the market and drive values back up. And while mortgage rates are nearly impossible to predict, inflation pressures remain strong, and it’s perhaps a better bet that rates will rise further than come back down. 

Single-family and Condo/Co-op Sales

According to NAR, single-family home sales declined to a seasonally adjusted annual rate of 4.22 million in September, down 0.9% from 4.26 million in August and down 23% from the previous year. The median existing single-family home price was $391,000 in September, up 8.1% from a year ago.

Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 490,000 units in September, down 5.8% from August and 30.0% from one year ago. The median existing condo price was $331,700 in September, an annual increase of 9.8%.

“Buying or selling a home involves a series of requirements and variables, and it’s important to have someone in your corner from start to finish to make the process as smooth as possible,” said NAR President Leslie Rouda Smith, a realtor from Plano, Texas, and a broker associate at Dave Perry-Miller Real Estate in Dallas. “Realtors rely on in-depth knowledge of the market and objectivity to deliver trusted expertise to consumers in every U.S. ZIP code.”

Regional Breakdown

Existing-home sales in the Northeast dwindled 1.6% from August to an annual rate of 610,000 in September, retreating 18.7% from September 2021. The median price in the Northeast was $418,500, an increase of 8.3% from one year ago.

Existing-home sales in the Midwest slid 1.7% from the previous month to an annual rate of 1,140,000 in September, falling 19.7% from September 2021. The median price in the Midwest was $281,500, up 6.9% from the prior year.

In the South, existing-home sales pulled back 1.9% in September from August to an annual rate of 2,080,000, a decline of 23.8% from this time last year. The median price in the South was $351,700, an increase of 11.8% from September 2021.

Existing-home sales in the West were identical to last month at an annual rate of 880,000 in September, but down 31.3% from one year ago. The median price in the West was $595,400, a 7.1% increase from September 2021.

NAR is the nation’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industry. The Arkansas Realtors Association, with twenty-eight independent local boards and associations statewide, including the Little Rock Realtors Association, is the state arm of NAR.