U.S. home sales fall slightly as pandemic-fueled demand runs out

In August, U.S. home sales fell slightly less than anticipated as demand remained tight, but there are signs that the sharp acceleration in house prices and the COVID - 19 pandemic-fueled demand have probably run their course.

The report from the National Association of Realtors on Wednesday showed the smallest share of first-time homebuyers in more than 2-1 two years and houses that continue to be snapped up after only 17 days on the market.

There is a suggestion here in the moderation of price gains and sales, and a declining share of first-time buyers that a considerable portion of the stock adjustment of demand for homes to low rates and pandemic-driven population moves has taken place, said Conrad DeQuadros, senior economic advisor from Brean Capital in New York.

Existing home sales dropped 2.0% to a seasonally adjusted annual rate of 5.88 million units last month. Sales fell in all four regions, with the densely populated North facing a decline of 3.0%. Economists polled by Reuters forecast that sales would fall in August to a rate of 5.89 million units.

Condo sales fell 1.9%, while single-family sales fell 2.8%. Home resales, that account for the bulk of U.S. home sales, fell 1.5% on a year-on-year basis.

The annual comparison was distorted by the pandemic-driven surge in sales in August 2020. Sales are up 16% in the same period this year compared to the same period in 2020.

The housing market boomed early in the coronavirus pandemic amid an exodus from cities as people worked online and took classes online, which fueled demand for larger homes in the suburbs and other low-density areas.

The surge, which was skewed towards the single-family housing market segment, far outpaced supply. Expensive building materials as well as an excessive land and labor shortage have made it harder for builders to increase production.

In August, government data on Tuesday showed single-family homebuilding fell for a second straight month in August.

However, while the pandemic tailwind remains fading, demand for housing remains strong thanks to near record low mortgage rates and rising wages from a tightened labor market.

Mortgage rates could rise, with the Federal Reserve expected Wednesday at the end of a two-day policy meeting later to clear the way for trimming its monthly bond purchases later this year. The central bank of the U.S. is expected to keep its benchmark overnight interest rate near zero for a while.

The U.S. stock indexes rebounded from recent losses as concerns over a default by China's Evergrande eased The dollar was steady against a basket of currencies. The median existing house price increased by 14.9% from one year ago to $356,700 in August. The pace of increase is, however, subsiding and bidding wars are slowing. House price rose by at least 23% in May, averaging up to $90k for the week.

Sales remained concentrated in the upper end of the market. Sales of homes below $250,000 price range continue to experience double-digit declines.

Residential investment contracted in the 2nd quarter after three consecutive quarters of double-digit growth. August's reversal suggest less brokers' commissions. This together with the decline in residential investment suggests a further decrease in housing starts in this quarter.

There were 1.29 million previously owned homes on the market last month, down 13.4% from a year ago. At August's sales pace, it would take 2.6 months to exhaust the current inventory, down from 3.0 months a year ago. A six months supply is viewed as a healthy balance between supply and demand.

Economists do not believe another housing bubble is developing as the acceleration is mostly driven by a mismatch between supply and demand, instead of poor lending practices, which triggered the 2008 global financial crisis.

In August, properties typically remained on the market for 17 days, unchanged from July but down from 22 days a year ago. 81 percent of homes sold by last month were on the market for less than a month.

First-time buyers accounted for 29% of sales, the lowest since January 2019, down from 30% in July and 33% a year ago. All cash sales accounted for 22% of transactions, down from 23% in July and back from 18% a year ago.