The housing market’s struggles continued last month as sales dipped in August, with higher mortgage rates and expensive asking prices holding down the level of completed sales.

Existing-home sales dipped 2.5% in August from the previous month, the National Association of Realtors said Thursday. Compared to a year ago, sales fell by 4.2% as the market has continued a lengthy slump, with high interest rates and prices keeping activity down.

Despite the lack of sales, prices have continued to increase for 14 consecutive months, reaching $416,700 in August.

“Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said Lawrence Yun, NAR’s chief economist.

A lack of inventory on the market amid a national housing shortage and homeowners being unwilling to give up ultra-low interest rates that were available during the pandemic have kept the number of available existing homes, the largest segment of the housing market, down and list prices high.

There was some improvement in inventory on the market last month, as some homes are hitting the market and sitting for a bit. Total inventory was up 0.7% from July and 22.7% from a year ago for a total of 1.35 million units. More inventory on the market is helpful to buyers, giving them more options to choose from and easing pressure on prices.

Overall, there is a 4.2-month supply at the current pace of sales. The housing market is considered balanced if there is a five- to six-month supply.

“The rise in inventory — and, more technically, the accompanying months’ supply — implies homebuyers are in a much-improved position to find the right home and at more favorable prices,” Yun said.

Mortgage rates have fallen significantly from a year ago and are likely to continue to decline after the Federal Reserve enacted its first cut to its benchmark interest rate on Wednesday. Mortgage buyer Freddie Mac said rates hit the lowest levels since February 2023 earlier this month in anticipation of the rate cut.

Rates on a 30-year fixed-rate mortgage — the most common type for homebuyers — averaged 6.2% as of a week ago. A year ago, the average rate on a 30-year loan was 7.18%.

Moderating interest rates will help expand budgets by lowering monthly payments on a loan but could also drive sales prices up as the pool of competition for a limited supply of homes grows.

“Even with these rate reductions, we expect some continued pressure on the housing market. The majority of homeowners are likely to cling to their low-rate mortgages, keeping resale inventory tight and driving more opportunities for new home sales,” said Nirvan Ghosh, a portfolio manager at Palisades Group, a Texas-based real estate investment group. “We anticipate the rate reductions will create a wave of pent-up demand from folks on the sidelines that could further push home prices higher. It’s only when mortgage rates approach 5% that we might see a meaningful uptick in resale listings, bringing a much-needed balance to supply and demand.”

While easing interest rates and more supply are helping would-be buyers deal with the housing affordability crisis playing out in most metros across the U.S., it is still one of the most expensive periods ever to purchase a home. The cost of housing has been a frequently mentioned topic in the presidential campaign, with both candidates promising to increase the number of homes on the market to bring costs down.

Construction of single-family homes has lagged since interest rates rose, adding another challenge for the country’s homebuilders to navigate, along with labor shortages, difficulty getting supplies and zoning restrictions that limit how many homes can be built.

But starts of single-family homes had a solid gain last month, with a 9.6% increase. On a year-to-year basis, single-family starts are up 10.4%, the National Association of Home Builders said on Wednesday. The Fed’s rate cut is expected to help builders continue to start new projects.

“The loosening monetary policy over the coming months will boost new home building by lowering construction loan rates for builders,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “The rise in single-family permits is further good news for the industry, which was hit hard by tight monetary policy in the first half of this year.”