Home sales continue to slide as Fed jacks up interest rate

The number of homes sold across the U.S. slowed in August, the seventh month in a row of declining sales. 

The National Association of Realtors said Wednesday that existing home sales fell to 4.8 million last month, down 0.4% from July. Home sales are down nearly 20% over the last year and are at their slowest annual pace since May 2020. The housing market has cooled as mortgage rates top 6%, double their level in January.

The average rate on a 30-year home loan rose to 6.02% last week, moving above 6% for the first time since 2008, according to mortgage buyer Freddie Mac. Every percentage point increase in mortgage rates adds hundreds of dollars to monthly payments. The jump in rates means a typical homebuyer will pay up to $600 more per month for a 30-year mortgage.

"The rising mortgage rate has clearly hampered the housing market," said NAR chief economist Lawrence Yun.

In its ongoing battle against inflation, the Federal Reserve on Wednesday raised its target rate by 0.75 percentage point — the fifth hike this year. But the latest increase in the Federal Funds rate is unlikely to affect mortgage rates in the near-term because current borrowing costs already had "priced in" the Fed's three-quarters of a point move, Redfin chief economist Daryl Fairweather told CBS MoneyWatch. 

Still, economists expect home sales to continue falling for the rest of this year, while noting that prices remain higher than they were a year ago. The national median home price in August was $389,500, up 7.7% from a year ago, according to NAR.

Because the Fed plans to continue hiking up its rate later this year and potentially into 2023, mortgage rates could climb even higher than what they are now, George Ratiu, manager of economic research at Realtor.com, told CBS News. 

Higher home prices and interest rates have pushed mortgage payments on a typical home from $897 to $1,643 a month, an 83% increase over the past three years, according to Zillow. 

"Now that the market is cooling, there is less competition per home, more time to make these critical decisions and more negotiating power in the hands of buyers than at any point in the last few years," said Nicole Bachaud, senior economist at Zillow. "Sellers, on the other hand, are having to reset their expectations."

The Associated Press contributed to this report.