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U.S. existing home sales dropped for the seventh straight month in August as affordability deteriorated further amid surging mortgage rates and stubbornly high house prices, though the pace of decline moderated from prior months.

The report from the National Association of Realtors on Wednesday followed news this week that confidence among single-family home builders eroded for the ninth consecutive month in September, while permits for future home building tumbled to the lowest level since June 2020 in August.

The Federal Reserve’s aggressive monetary policy tightening, marked by oversized interest rate increases, has weakened the housing market considerably. In contrast, other sectors of the economy, like the labour market, have shown incredible resilience despite the U.S. central bank’s attempts to cool demand.

“The decline in affordability is by design to some extent,” said Daniel Vielhaber, an economist at Nationwide in Columbus, Ohio. “Housing is the most sensitive to changes in the Fed’s interest rate policy, the Fed’s goal of slowing economic demand by raising interest rates starts with home sales.”

Existing home sales slipped 0.4 per cent to a seasonally adjusted annual rate of 4.80 million units last month. Discounting the plunge during the spring of 2020 when the economy was reeling from the first wave of COVID-19, this was the lowest sales level since November 2015.

Sales rose in the Northeast and West, but were unchanged in the densely populated South. They fell in the Midwest, which is generally considered a more affordable housing region.

Economists polled by Reuters had forecast sales decreasing to a rate of 4.70 million units.

The smaller-than-expected decline was likely the result of contracts signed in July, when mortgage rates retreated after sharp increases. They slowed further in August, which could result in home sales eking out some gains in September.

But the outlook for the housing market remains dark. Housing finance giant Fannie Mae on Wednesday lowered its forecast for total home sales this year to 5.71 million units from 5.78 million units previously. It now expected home sales to come in at 4.98 million units in 2023, revised down from the previously estimated 5.18 million units. Stocks on Wall Street traded higher. The dollar rose against a basket of currencies. Yields on the interest-rate sensitive two-year Treasury note hit 4 per cent for the first time since 2007.

The Fed is expected to raise its policy rate by 75 basis points later on Wednesday for the third time in as many policy meetings. Since March, the central bank has lifted that rate from near zero to its current range of 2.25 per cent to 2.50 per cent.

“We expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, and considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates,” said Doug Duncan, chief economist at Fannie Mae.

The 30-year fixed mortgage rate averaged 6.02 per cent last week, from 5.89 per cent in the prior week, breaking above 6 per cent for the first time since November 2008, according to data from mortgage finance agency Freddie Mac.

Though house price growth has slowed as demand weakened, tight supply is keeping prices elevated. The median existing house price increased 7.7 per cent from a year earlier to $389,500 in August. That was the smallest year-on-year rise since early in the pandemic. The median house price surged to a record high of $413,800 in June.

Rising mortgage rates and home prices since the start of the year have boosted monthly mortgage payments more than 50 per cent.

“Home price growth is likely to continue to decelerate, but the limited supply of homes for sale will likely prevent too steep a decline,” said Nancy Vanden Houten, a U.S. economist at Oxford Economics in New York.

There were 1.28 million previously owned homes on the market, unchanged from a year ago as the higher borrowing costs discourage homeowners who locked-in lower rates years ago from selling their properties.

At August’s sales pace, it would take 3.2 months to exhaust the current inventory of existing homes, up from 2.6 months a year ago. A five-to-seven-month supply is viewed as a healthy balance between supply and demand. The improvement is mostly because sales are weakening.

Properties typically remained on the market for 16 days, up from 14 days in July, but down from 17 days last August. Before the pandemic 30 days on the market was the norm. Eighty-one per cent of homes sold were on the market for less than a month.

First-time buyers accounted for 29 per cent of purchases, unchanged from July and a year ago. All-cash sales made up 24 per cent of transactions, up from 22 per cent from a year ago. Prior to 2020, cash sales accounted for only 20 per cent of transactions.

The NAR attributed the higher cash sales share to people needing loans to buy a home dropping out of the market.