Sales of previously occupied U.S. homes bounced back in September to their strongest pace since January as mortgage rates tick higher, motivating buyers to get off the sidelines.
The National Association of Realtors said this past week that existing homes sales rose 7 percent compared with August to a seasonally-adjusted annual rate of 6.29 million units. That was stronger than the 6.11 million units that economists had been expecting, according to FactSet.
Sales were down 2.3 percent compared with September last year, a time when home purchases surged as buyers who had held off during the early months of the pandemic returned in force.
"The increase in sales in the latest month I would attribute to mortgage rates," said Lawrence Yun, the NAR's chief economist. "This autumn season looks to be one of the best autumn home sales seasons in 15 years."
Yun noted that a dip in mortgage rates in August gave buyers urgency to close deals on homes, which translated into the sharp September increase in completed transactions.
While the average rate for a 30-year mortgage remains near historic lows, it has been inching higher since August, when the weekly rate averaged 2.77 percent, according to mortgage buyer Freddie Mac.
The average rate has risen to 3.09 percent, the highest level since April, when it peaked at 3.18 percent. A year ago, the rate averaged 2.8 percent. When mortgage rates rise, it gives would-be homeowners less buying power.
Economists expect mortgage rates to rise up to 4 percent next year as the Federal Reserve takes action to control rising inflation. The central bank is widely expected to announce a timetable for reducing its monthly bond purchases at its policy meeting next month. Those bond purchases have helped keep mortgage rates at ultralow levels for much of the last 18 months.
The median home price jumped to $352,800 in September, a 13.3 percent increase from September last year. The rise in prices continued to weigh on first-time buyers, who accounted for 28 percent of all sales last month. That's the lowest level since July 2015, the NAR said.
Homes purchased in cash rose 23 percent in September from the previous month. Individual investors, who account for many cash sales, accounted for 13 percent of all home sales last month.
Despite the sharp increase in sales last month, there are signs the housing market frenzy that drove 20 percent to 25 percent annual increases in the median home price is easing. Properties on the market are receiving fewer multiple offers and buyers increasingly are refusing to waive their right to a home inspection or appraisal, Yun said.
Still, the inventory of homes on the market remains tight in much of the country, which continues to support higher prices.
At the end of September, the inventory of unsold homes stood at just 1.27 million homes for sale, down 0.8 percent the previous month and down 13 percent from a year ago. At the current sales pace, that amounts to a 2.4 months' supply, down from 2.7 months a year ago, the NAR said.
Homes continue to sell within days of being put up for sale. Homes typically remained on the market 17 days before getting snapped up last month. That's held steady the past six months. In a market that's more evenly balanced between buyers and sellers, homes typically remain on the market 45 days. All told, 86 percent of homes sold last month were on the market for less than 30 days.
The inventory of homes for sale should begin to improve next year, as builders continue to ramp up construction and the end of mortgage forbearance programs force homeowners in financial straits to put their home up for sale, Yun said.
"The days of inventory being down 20 percent or 25 percent, those days are over," Yun said. "The decline is lessening and soon in 2022 we'll begin to see inventories are higher year-over-year."