Sales of previously occupied U.S. homes decreased by 1.7% in July compared to June, reaching a seasonally adjusted annual rate of 4.06 million units. This slowdown, reported by the National Association of Realtors (NAR), indicates that persistently high home prices and mortgage rates continue to deter prospective buyers.
Despite the monthly dip, July sales were up 0.7% from the same period last year. However, home prices reached a new record for July, with the U.S. median sales price climbing 2% year-over-year to $434,100. This trend of rising prices, coupled with increasing borrowing costs, presents a significant challenge for many potential homeowners.
Last week, the benchmark 30-year fixed mortgage rate rose to 6.69%, its highest level in over a year and the fifth consecutive weekly increase. This places considerable strain on buyers facing steep borrowing costs.
Lawrence Yun, NAR's chief economist, noted that home sales have remained relatively stable despite recent increases in mortgage rates, suggesting the market would perform better with rates closer to 6%. For about three years, home sales have largely hovered near a 4-million annual pace, falling short of the historical norm of approximately 5.2 million units.
The U.S. housing market has experienced a slump since 2022, when mortgage rates began to rise from pandemic-era lows. Last year, sales of existing homes were stagnant, reaching a 30-year low.
Factors influencing the current market include expectations of higher inflation, driven in part by surging oil prices and geopolitical events, which have pushed up long-term bond yields. Lenders use these yields to price home loans, contributing to the rise in mortgage rates.
Home inventory levels also remain below historical averages. In July, there were 1.54 million unsold homes, a 1.9% decrease from June and a 0.6% reduction compared to July of the previous year. This inventory is significantly lower than the roughly 2 million homes typically available before the COVID-19 pandemic.
The current inventory provides a 4.6-month supply at the prevailing sales pace. A balanced market, typically considered between 5 to 6 months of supply, has not been reached.
Regionally, the Northeast saw prices increase faster than other areas, with a 5.2% year-over-year jump attributed to a shortage of available homes. First-time homebuyers accounted for 29% of sales in July, a decrease from June's 33% but a slight increase from 28% in July of the previous year. Historically, first-time buyers represent closer to 40% of home sales.