The National Association of Realtors (NAR) reported a 2.2% drop in sales of previously owned homes in July compared to the previous month, signaling ongoing challenges in the housing market. The annualized rate of 4.07 million units reflects a significant 16.6% decline from July of the previous year, according to data released on Tuesday.
Economists, who were polled by Bloomberg, predicted a higher sales figure of 4.15 million units, revealing the market’s deviation from expert forecasts. NAR Chief Economist Lawrence Yun, in a press call, highlighted the troubling conditions faced by potential buyers, noting that July’s sales pace was not only the lowest for the month since 2010 but also the third lowest in the current housing cycle.
Yun attributed the lackluster sales activity to two primary factors — the constrained inventory availability and the unfavorable mortgage rates. “Unfortunately, both have been unfavorable to buyers,” Yun emphasized in a statement. Although July showed a slight increase in options for homebuyers compared to June, the persistent inventory problems in the resale market remained unresolved.
According to NAR’s data, the number of homes available for sale at the end of July reached 1.11 million units, marking a 3.7% uptick from June’s numbers. However, this figure remained 14.6% lower than the inventory recorded a year ago. The supply of unsold inventory, indicated by a 3.3-month figure, inched up from June’s 3.1 months but still falls considerably short of a healthy market’s standards.
Mortgage rates played a pivotal role in July’s dynamics, with rates hovering around 7% throughout the month. This notable increase in rates, culminating in the highest 30-year fixed mortgage rate in over two decades, has priced out many budget-conscious homebuyers from the market. Additionally, the rate surge prompted existing homeowners to retain their lower mortgage rates, leading to a scarcity of available properties for sale.
The market’s lifeline appears to be the newly built homes sector, which is compensating for the dearth of existing homes for sale. Redfin’s research found that in the second quarter, 31.4% of single-family homes available were newly constructed, a record high for any second quarter. Shuana Pendleton, a Redfin Premier agent, emphasized the pivotal role of new construction in the market, stating that it’s often the only option for many buyers as homeowners hold back from selling.
In contrast to expectations, July witnessed a reversal in pricing trends for pre-owned homes. After five consecutive months of declines, the median price for these homes surged by 1.9% to $406,700 compared to the previous year’s $399,000, NAR reported. Pendleton noted the urgency among buyers to secure a home amidst concerns of further price increases, accentuating the appeal of new construction which often comes with enticing concessions.
Regionally, the Western region was the only area to record a monthly gain, with a 2.7% increase in home sales. However, the annual rate of 770,000 units still fell short by 12.5% compared to the previous year. The Northeast and Midwest regions reported declines of 5.9% and 3% in home sales respectively, showcasing the national nature of the downturn. In the South, home sales dipped by 2.6% from June, amounting to an annual rate of 1.86 million in July, down by 14.3% from a year ago.
First-time buyers constituted 30% of July’s sales, showing a modest increase from June and the previous year. Meanwhile, individual investors and second-home buyers, largely responsible for cash transactions, purchased 16% of homes in July, reflecting a decrease from June but an increase from the previous year.
In summary, the resale housing market has been grappling with significant challenges, as July’s sales data indicates. A combination of limited inventory and mortgage rate hikes have hindered buyer activity, while new construction continues to be a beacon of hope. However, July’s unexpected increase in pre-owned home prices adds a complex layer to the market dynamics, further influencing buyer behavior.
Source: Yahoo Finance
