(Oct 13): Sales of US existing homes rose in September for the first time in four months, although a surge in mortgage rates and high prices are set to keep activity depressed through the remainder of the year.

Contract closings climbed 1.5% last month to an annualised rate of 3.99 million after a downward revision to August sales, figures released on Tuesday by the National Association of Realtors (NAR) show. That topped the 3.95 million median estimate of economists surveyed by Bloomberg.

Despite the increase, “August and September marked the two slowest months for home sales this year,” NAR chief economist Lawrence Yun said in a statement. “Further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home.”

At least some of last month’s modest improvement predated the more than half-point climb in mortgage rates since early September to 7.49%. September’s gain also belies the formidable challenges facing the nation’s housing market. 

Earlier in the year, the country had been making some progress in reducing the so-called “lock-in” effect — the disincentive to move that homeowners face because of their low existing borrowing costs. 

However, the recent surge in rates has halted that progress. It also adds a “US$19,000 shock” for would-be buyers with a US$2,000 (RM8,165) monthly budget, Realtor.com chief economist Danielle Hale said earlier this month in a blog post.

“The reset in rates over the last five weeks has shaved a little more than 6% off of the purchasing power of buyers across every budget, which is almost twice the typical price-savings advantage of buying in this less competitive season,” Hale said.

Higher financing costs are likely to weigh on prices if they’re sustained. In September, the median sales price rose 1.3% from a year ago to US$417,500, NAR data show, extending a run of year-over-year price increases dating to mid-2023.

Meantime, the supply of previously owned homes for sale climbed 4.6% from a year ago to 1.6 million, NAR data show. That represents 4.8 months of supply at the current sales pace, staying at the more than decade high it reached in August.

The still-elevated prices and surge in mortgage rates have hurt housing affordability, which is helping fuel the debate over the high cost of living, a central theme of November’s midterm elections. NAR’s housing affordability index, which measures whether a typical family earns enough to qualify for a mortgage for a median-priced home, slipped 1.2% from a year ago.

Previously owned home sales in both the South and the West rose 2.8% in September. Sales in the Midwest were flat and activity in the Northeast fell.

“The fourth-quarter outlook for closing activity will clearly be down, maybe even measurably down,” Yun said on Tuesday on a call with reporters. “We are seeing more delays in the contracts with these rising interest rates.”

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