Existing home sales continued to slide in August, falling 1.7% to 5.35 million (annualized), marking the fourth decline in five months. The headline print disappointed market expectations which called for a moderate uptick of 0.2% on the month.

The decline was concentrated in the single-family segment where transactions fell by 2.1% to 4.74 million, from 4.84 million in the month prior. Meanwhile, sales in the smaller condo/co-op segment managed to edge higher, rising 1.7% to 610 thousand.

Regional performances were mixed, as resale activity pulled back sharply in the South (-5.7%) given the likely impact from Hurricane Harvey in southeast Texas and West (-4.8%), while improving in the Midwest (+2.4%) and soaring in Northeast (+10.8%).

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The inventory of homes available for sale fell by a seasonally unadjusted 2.1% on the month and remained low at 1.88 million – down 6.5% from year-ago levels. At the current sales pace, inventory accounts for just 4.2 months’ worth of supply compared to 4.5 a year ago – well below the six months’ of sales considered a balanced market.

Despite the low inventory, the upward pressure on median home prices moderated slightly, with prices advancing by 5.6% y/y compared to 6.1% in the month prior.

First-time homebuyers accounted for 31% of sales. This was down from 33% in the month prior but unchanged from year-ago. Meanwhile, homes typically stayed on the market for 30 days – unchanged from last month but down from year-ago (36 days).

Key Implications

This marks another disappointing report, with existing home sales now having contracted for three consecutive months. Although Hurricane Harvey, which disrupted activity in the last week of August, is partly to blame for this month’s weakness, low inventory levels nationwide are one of the main culprits behind the weakening trend.

Resale activity is likely to go through some turbulence in the near-term, as the combined impacts of Hurricane Harvey and Irma likely weigh on the upcoming September report. However, we expect some respite in the fourth quarter as those impacts fade.

Further out, sales momentum should advance at a more steady pace, with demand for homes supported by continued job and income gains. Low inventories will continue to keep a lid on activity, but fast-rising prices that help encourage existing homeowners to put their homes on the market and increased homebuilding should provide some relief on that front. Having said that, both of these are likely to be gradual.

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