Home Sales Are Down 14.6% From a Year Ago. Here’s Why That’s Not a Good Thing for Buyers

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Home sales are down — but it’s not because buyer demand is gone. Read on to learn more. 

There’s a reason so many buyers have struggled to purchase a home — prices are high at a time when mortgages are expensive to sign.

Mortgage lenders slashed their rates in 2020 as the COVID-19 pandemic fueled a broad economic crisis. But mortgage rates have risen sharply since early 2022, putting more of a strain on buyers at a time when home prices are high.

In October, the median existing home sold for $391,800. That’s a 3.4% uptick from a year prior, according to the National Association of Realtors. At the same time, home sales were down 14.6% in October compared to October of 2022. And given that slump, you’d think home prices would be following suit.

But the reason home prices are rising as sales are dropping has nothing to do with buyer demand or a lack thereof. Rather, it’s a matter of absent real estate inventory.

There are simply no homes to buy

Many homeowners locked in affordable mortgages in 2020 or 2021. And many of those who weren’t looking to buy were able to refinance their existing mortgages to a lower rate.

The result? Right now, there are many property owners sitting on mortgages in the 3% range who don’t want to swap those loans for a rate of upward of 7%, which is where rates are trending today. Because of that, there’s been a serious lack of available homes on the real estate market. And when there aren’t homes for people to buy, sales decline. It’s that simple.

But to be clear, that decline in home sales isn’t giving buyers any sort of advantage. It’s only, if anything, become a source of frustration.

How to navigate a low inventory housing market

If you’re trying to buy a home, there are several humps you’ll have to get over. First, there’s the issue of affordability. Elevated home prices and mortgage rates might force you to stretch your budget, so crunch those numbers carefully to see what you can afford. You can use The Ascent’s mortgage calculator to help.

As a general rule, you really do not want your housing costs to exceed 30% of your take-home pay. And that 30% should include expenses related to housing like property taxes, homeowners insurance, and homeowners association fees, if applicable.

Next, there’s the issue of being able to find a suitable home. It’s important to know what features you can and shouldn’t compromise on when you’re looking to buy in a market that sorely lacks inventory.

Features like an updated kitchen or finished basement are something you can attain in time. If you buy a home whose kitchen has laminate countertops and lime green appliances, you can make changes as money allows. So that’s something worth compromising on.

But you can’t change the location of your home over time. So if it’s really important to be in a certain neighborhood or school district, make that a priority.

Similarly, if you’re a family of five, squeezing into a two-bedroom home may not be optimal. Some properties allow for the possibility of an addition. But if a home you’re looking at doesn’t, and it’s much smaller than what you want, then you may want to pass.

Home sales are likely to remain sluggish until housing inventory picks up. And that may not happen for a while. So the best you can do as a buyer is try to set a reasonable budget and focus on the right priorities in the course of your home search.

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