Home sales surged to a 14-year high in August as record low interest rates brought homebuyers out in droves and pushed prices to a new record high.
Existing home sales — which includes sales of single-family homes, townhomes, condominiums and co-ops — were up 2.4% in August from July, to a seasonally-adjusted annual rate of 6 million transactions, according to the National Association of Realtors. That was a 10.5% increase from the year before and the highest level since December 2006.
The median price for all housing types was $310,600 in August, up 11.4% from a year ago when the median price was $278,800. This marks 102 straight months of year-over-year gains. Prices rose in every region across the country.
NAR’s chief economist Lawrence Yun said the housing market appears to be in a ‘V’-shaped recovery.
“Home sales continue to amaze,” said Yun. “Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3% and with continued job recovery.”
But a short supply of available homes compared to the high demand will prove to be a challenge.
“Housing demand is robust, but supply is not,” said Yun, “and this imbalance will inevitably harm affordability and hinder ownership opportunities.”
Natural disasters worsen inventory woes
Total housing inventory was down 18.6% from a year ago. Low inventory has challenged the housing market for the past few years, said Yun. But now the situation is even worse due to a dramatic surge in lumber prices and other complications from the California wildfires.
“Over recent months, we have seen lumber prices surge dramatically,” Yun said. “This has already led to an increase in the cost of multifamily housing and an even higher increase for single-family homes.”
Earlier this month, new housing supply took a hit from wildfires and hurricanes and sales activity weakened, according to Danielle Hale, chief economist for Realtor.com.
“The combination of high prices and low supply is going to continue to make finding a home an even more difficult task than it already is,” she said.
Low- and middle-income home buyers will be the hardest hit, according to Robert Frick, corporate economist at Navy Federal Credit Union.
“The combination of higher prices and low supply is shutting many lower-income Americans out of the market, and in some regions with the most expensive housing, even middle-income Americans can’t afford a home,” said Frick.
Homes selling quickly
Homes sold quickly in August, with many resulting in multiple offers and all-cash deals.
Properties typically remained on the market for 22 days during the month, according to NAR, which is about the same as in July, but down from 31 days a year ago. A majority of the homes sold in August, 69%, were on the market for less than a month.
“Even continued strong existing home sales don’t reflect how high demand is,” said Frick. “Homes on the market are receiving double-digit offers in some areas of the country, and that demand is further reflected in rising prices.”
All-cash sales accounted for 18% of transactions in August, up from 16% in July. While individual investors or second-home buyers, who account for many cash sales, purchased 14% of homes in August, the higher number of cash offers suggests that home buying is highly competitive, said Yun.
“Some people are trying to distinguish themselves,” he said, particularly in multiple-offer situations.
Yun anticipates strong home sales and high prices will continue throughout the rest of the year.
“If there is a multiple-offer situation, that means there are multiple losers. The people who have been outbid are still in the market,” he said. “There are plenty of buyers in the pipeline.”