Lower mortgage rates push home sales up in September, but prices still stubbornly high

Previously owned home sales in September rose 1.5% month-over-month to an annualized 4.06 million units, a seven-month high and 4.1% above last year, driven by falling mortgage rates and improving affordability. Despite this increase, inventory remains historically tight at a 4.6-month supply, sustaining upward pressure on the median home price, which climbed 2.1% year-over-year to $415,200, marking 27 consecutive months of annual gains. This data suggests a nascent recovery in housing activity, particularly in the high-end market, influenced by interest rate movements and persistent supply-demand imbalances.

Analysis

Previously owned home sales rose 1.5% month-over-month in September to an annualized rate of 4.06 million units, marking a seven-month high despite slightly missing analyst forecasts. This 4.1% year-over-year increase is largely attributed to falling mortgage rates, which declined from 6.67% in July to 6.17% currently, as noted by NAR's chief economist.

However, inventory remains historically tight at a 4.6-month supply, despite a 14% year-over-year gain, falling short of the six-month balanced market level. This sustained imbalance continues to exert upward pressure on prices, with the median home price climbing 2.1% annually to $415,200, marking the 27th consecutive month of year-over-year gains.

The high-end market demonstrated particular strength, with sales of homes over $1 million increasing 20% year-over-year, likely benefiting from greater supply in these price tiers. First-time homebuyers also expanded their market share to 30% of September sales, up from 26% previously, suggesting broader market participation as affordability improves.

Key Decisions for Investors

• Monitor mortgage rate trends closely, as continued declines could further stimulate housing demand and sales volumes, particularly for first-time buyers.
• Evaluate exposure to homebuilders and real estate investment trusts (REITs) with a focus on higher-end segments, given their demonstrated sales resilience and potential for continued price appreciation.
• Assess the impact of persistent low inventory and rising prices on housing affordability, which could limit broader market expansion despite improving rates and potentially lead to longer days on market.