By Jordan Yadav | Bloomberg

Sales of previously owned U.S. homes fell for a seventh consecutive month in August as rising mortgage rates continued to erode affordability and dealt a major blow to the housing market.

The rate of contract closings fell 0.4 percent to an annual pace of 4.8 million, the weakest since May 2020, data from the National Association of Realtors showed on Wednesday. A Bloomberg survey of economists called for an average estimate of 4.7 million. Sales fell 17.4 percent on an unadjusted basis from a year ago.

The decline was the longest since the housing market crashed in 2007. While weak demand has dampened industry sentiment, economists foresee a relatively modest pullback in home prices amid still tight supply in most areas.

The average rate on a 30-year fixed mortgage rose to 6.25 percent last week, the highest in nearly 14 years and more than double the rate from a year ago, according to the Mortgage Bankers Association.

Rising borrowing costs come as Treasury yields rise as a result of tighter Federal Reserve monetary policy aimed at reining in decades of high inflation. The central bank on Wednesday announced a three-quarter percentage point rate hike, the third consecutive hike.

“Inventories will remain tight in the coming months and even the next few years,” NAR Chief Economist Lawrence Yoon said in a statement. “Some homeowners are unwilling to trade up or trade down after closing in on historically low mortgage rates in recent years, increasing the need for more new home construction to increase supply.”

The number of homes for sale fell 1.5 percent from July to 1.28 million. At the current sales pace it will take 3.2 months to sell all homes on the market, up from 2.6 months in August 2021. Realtors see less than five months of supply as an indication of a tight market.

Despite declining sales, “we’re not seeing any increase in inventory on net,” Yoon said.

Selling prices.

The median sales price rose 7.7 percent from a year ago to $389,500. The annual increase was the smallest since June 2020. After hitting a record high of $413,800 in June, prices have fallen on a monthly basis. August’s decline was broad across price points and regions.

“In a sense, we’re seeing a return to normalcy with the home buying process as it relates to home inspection and appraisal emergencies,” NAR President Leslie Rhoda Smith said in a statement. The planting wars have essentially stopped.”

First-time buyers accounted for 29% of all transactions in August, matching July’s share.

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