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U.S. existing home sales unexpectedly fell in August as persistently tight supply boosted prices, and a further decline is likely amid a resurgence in mortgage rates.

Existing home sales slipped 0.7 per cent last month to a seasonally adjusted annual rate of 4.04 million units, the National Association of Realtors said on Thursday. Existing home sales are counted at the closing of a contract.

Last month’s sales likely reflected contracts signed in July, before the recent run-up in mortgage rates, which lifted the rate on the popular 30-year fixed mortgage above 7 per cent.

Economists polled by Reuters had forecast home sales climbing to a rate of 4.10 million units.

Sales fell in the South and West. They rose in the Midwest and were unchanged in the Northeast.

Home resales, which account for a big chunk of U.S. housing sales, dropped 15.3 per cent on a year-on-year basis in August.

The housing market had shown signs of stabilizing after being slammed by the Federal Reserve’s aggressive monetary policy tightening. With mortgage rates resuming their upward trend, it appears to be faltering. Home builder confidence slumped to a five-month low in September, while housing starts in August dropped to levels last seen in mid-2020.

The increase in mortgages rates is in tandem with U.S. Treasury yields, which have risen amid worries that surging oil prices could hamper the Fed’s fight against inflation.

The U.S. central bank on Wednesday left its benchmark overnight interest rate unchanged in the 5.25 per cent-5.50 per cent range. The Fed, however, stiffened its hawkish stance, projecting another hike by year end and monetary policy staying significantly tighter through 2024 than previously expected. The Fed has raised the policy rate 525 basis points since March 2022.

There were 1.1 million previously owned homes on the market last month, down 14.1 per cent from a year ago. At August’s sales pace, it would take 3.3 months to exhaust the current inventory of existing homes, up from 3.2 months a year ago.

A four-to-seven-month supply is viewed as a healthy balance between supply and demand. The median existing house price increased 3.9 per cent from a year earlier to $407,100. It was the third straight month the median sales price surpassed $400,000.

“Home prices continue to march higher despite lower home sales,” said Lawrence Yun, the NAR’s chief economist. “Supply needs to essentially double to moderate home price gains.”

Properties typically remained on the market for 20 days in August, up from 16 days a year ago. Seventy-two per cent of homes sold in August were on the market for less than a month.

First-time buyers accounted for 29 per cent of sales, unchanged from a year ago. All-cash sales accounted for 27 per cent of transactions compared to 24 per cent a year ago.

Distressed sales, including foreclosures, represented only 1 per cent of transactions, unchanged from July.

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