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Economic Report: Existing-home sales decline as buyers hold out for better prices, more options

The numbers: Existing-home sales retreated in August, as inventory and price remained major concerns for prospective buyers.

Existing-home sales dropped 2% to a seasonally-adjusted, annual rate of 5.88 million in August, the National Association of Realtors said Wednesday. Compared with August 2020, home sales were down 1.5%.

“Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory,” Lawrence Yun, chief economist for the National Association of Realtors, said in the report.

Economists polled by MarketWatch had projected existing-home sales to come in at 5.87 million. The median sales price of an existing home was up nearly 15% year-over-year at $356,700.

What happened: The total inventory of housing at the end of August was 1.29 million units, down 1.5% from July and 13.4% from a year ago.

Expressed in terms of the months’ supply, there was a 2.6-month supply of homes based on the current pace of sales, unchanged from July. A 6-month supply of homes is indicative of a balanced market, generally speaking.

All regions saw a monthly decline in home sales, led by a 3% drop in the South.

The big picture: The good news for would-be buyers is that the inventory of homes for sale is improving. Since the low reached in the winter, inventory has risen roughly 16%, according to an analysis from Ian Shepherdson, chief economist at Pantheon Macroeconomics. At the same time, price appreciation has slowed, with home prices now rising by less than 1%, per Shepherdson’s calculations, rather than more than 2% per month at the market’s peak.

“These trends are likely to continue, as sellers realize that the window for cashing-in at the best prices appears to be closing,” Shepherdson wrote. That’s to the benefit of home buyers who have grappled with breakneck home price growth and steep competition for the few homes on the market. Those conditions had likely pushed some buyers to pause their search for a home, and those people may resume looking again in the coming months.

What they’re saying: “The housing market’s relationship with this pandemic economy is complicated. While heightened economic uncertainty dims consumer confidence and may result in tighter credit, it also puts downward pressure on mortgage rates,” First American Financial
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chief economist Mark Fleming wrote in a new analysis. “The shortage of labor supply relative to the growing demand for labor has fueled household income growth. While the economy may be taking a ‘Delta dip,’ the unexpected burst of increased house-buying power has boosted housing market potential.”

“Pending home sales wilted in the past two months, suggesting activity has been somewhat capped by surging home prices and supply constraints. Overall, while the housing market has cooled from earlier in the year, we expect it to remain sturdy amid rising employment and low interest rates,” Priscilla Thiagamoorthy, an economist with BMO Capital Markets, wrote in a research.

“Those who continue their home searches in the cooler months ahead are likely to be pleasantly surprised. Not only do we expect to see the usual seasonal respite from the competitiveness of the spring and summer home-buying season — making early fall the best time to buy a home — the return of sellers to the housing market driven by the improving economy and diminishing health risks could accentuate this trend,” said Danielle Hale, chief economist at Realtor.com.

Market reaction: The Dow Jones Industrial Average 
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and the S&P 500
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+0.82%

were both up in Wednesday morning trading ahead of an announcement from the Federal Reserve, which could address the central bank’s asset purchases.

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