The numbers: Existing-home sales increased for the fourth consecutive month in September, as the U.S. housing market benefitted from low interest rates.
Total existing-home sales rose 9.4% from August to a seasonally-adjusted, annual rate of 6.54 million, the National Association of Realtors reported Thursday. Compared with a year ago, home sales were up nearly 21%.
“Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season,” Lawrence Yun, the trade group’s chief economist, said in the report. “I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home.”
Economists polled by MarketWatch had projected existing-home sales to rise to a median rate of 6.36 million.
What happened: The fast pace of home sales has quickly dwindled the remaining supply of homes on the market, however. More than seven in 10 homes on the market in September sold in less than a month. As a result, by month’s end the total inventory of homes for sale dropped to a 2.7 months’ supply, the lowest on record. A 6-month supply of homes is considered to be indicative of a balanced market.
The dwindling inventory of homes for sale, when combined with increased demand from buyers, drove prices higher. The median existing-home price was $311,800, roughly 15% higher than in September 2019. That’s the largest increase in home prices since late 2005.
Nevertheless, home sales grew in every region across the country, led by a 16.2% jump in the Northeast, the National Association of Realtors reported.
The big picture: A combination of factors has driven home sales to their highest pace in many years. “Existing home sales continued to register higher than one year ago as low mortgage rates helped offset the sting of sharply higher prices,” said Danielle Hale, chief economist at Realtor.com. “Greater buyer and, perhaps more importantly, seller confidence also helped boost home sales activity this month.”
But there’s still the chance that the wheels could come off for the housing market in the months to come. Unless sellers choose to enter the market in droves, the limited supply of homes for sale will naturally put a ceiling on how high sales volumes can go. And as the pandemic continues, the risk of a prolonged economic downturn could cause some buyers to rethink making a big purchase right now given rising home prices, especially if they are worried about their job security.
What they’re saying: “Higher earners have been more likely to retain their incomes, allowing the housing market to continue booming despite extremely high unemployment levels. Without a broader recovery, there remains risk to the housing market,” said Ruben Gonzalez, chief economist at Keller Williams.
“Mortgage rates are rock-bottom, and most homebuyers are much older than the typical customer-facing employee laid off during the Covid epidemic, but lending standards have tightened. We doubt this will be enough to push activity down materially anytime soon, but we don’t expect further big gains in home sales,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Market reaction: The Dow Jones Industrial Average and the S&P 500 were both down in Thursday morning trading.