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The latest National Association of Realtors Existing Home Sales Report points to a consistent downward trend in existing home sales across the U.S. and issues a stark warning against raising the federal funds rate any further. It also reveals that investment purchasing is growing, with many investors choosing to buy existing homes with cash.

September’s data confirms what everyone already knows about the real estate market. Overall, it’s been consistently slowing down over the past year due to an ongoing decline in new listings, coupled with increasing unaffordability. At least, that’s what the figures represent on the surface.

A Look at the Numbers

The total number of existing home sales—including single-family homes, condos, townhouses, and co-ops—was down 2% from August and down 15.4% year-over-year from September 2022. This drop represents nearly three-quarters of a million homes: 3.96 million were sold in September 2023, as opposed to 4.68 million in September 2022. 

NAR chief economist Lawrence Yun commented in the organization’s press release that ‘’as has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales.’’ He also issued a warning to the Federal Reserve about the need to rein in interest rates, arguing that there’s no longer a case for raising them any further: ‘’The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains.’’ 

A deeper look at the data shows that rising mortgage rates are indeed impacting housing affordability, but not quite to the extent that might be expected, given the huge mortgage rate hikes seen over the past two years. The number of first-time buyers, who are the main barometer of affordability in any housing market, declined a modest 2% month-over-month and 1% year-over-year. 

First-time buyers now make up 27% of all existing homebuyers, down from 29% in August. It’s not that there isn’t a problem with housing affordability—there is. However, it doesn’t seem that first-time buyers are significantly deterred by current high mortgage rates. There certainly isn’t an exodus of first-time buyers, the 7.57% average 30-year mortgage rate (up from 6.92% a year ago) notwithstanding.

An interesting—though, again, modest—shift is happening in the all-cash buyer segment of existing home sales. In September, cash buyers represented 29% of all existing home sales, up 2% from August. This is a steady upward trend: cash buyers made up only 22% of the total number of existing home sales in August 2022. At the same time, the number of individual investors has gone up to 18%—a 2% gain over August 2023 and a 3% gain over August 2022. 

There is a considerable overlap between cash buyers and investors, so investors buying homes with cash are at least partially responsible for the overall increase in the number of cash sales. Becoming a cash buyer always gives a competitive edge, so it’s no wonder that investors are employing this strategy in a housing market with severely limited inventories.     

Regional Differences  

Regionally, everywhere saw a decline in existing home sales, except the Northeast.

Sales in the Northeast went up by 4.2% month-over-month, though they are still down 16.7% year-over-year. All other regions showed declining monthly and annual home sales, with the West showing the biggest month-over-month and year-over-year declines, at 5.3% and 19.3%, respectively. 

Yun explains the upward trend in home sales in the Northeast as ‘’resulting from higher demand coupled with inventory falling by 20%,’’ while the softening of activity in the West is almost certainly due to a course correction “after years of unsustainable and rapid price increases, especially in the Rocky Mountain region.’’ 

Home prices continued to grow in all regions, the West included. However, the rates of price increases are now modest, ranging from just 1.8% in the West to 5.2% in the Northeast. The median home price is still the highest in the West at $606,100 as of September 2023. The lowest median existing home prices are in the Midwest, at $293,300. Overall, the median existing home price in September 2023 was $394,300, up from $383,500 (2.8%) a year ago.  

The Bottom Line

Should investors rush to buy real estate in the Northeast based on the current data? Not necessarily—unless you already are building a portfolio in this region. The Northeast represents densely populated, traditionally desirable (and expensive) coastal areas and New York City. These areas are guaranteed to continue having a supply-demand gap for years to come. 

This doesn’t mean that other regions present worse investment opportunities—only that they don’t have quite the same level of existing home inventory deficiency. What investors should be looking at right now is areas across the country that have resilient job markets and attractive local communities that will keep drawing in new first-time buyers and renters.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.