In July, the National Association of Realtors reported a 2.2% decline in the sales of previously owned homes compared to June. This led to a seasonally adjusted annualized rate of 4.07 million units. Additionally, these sales were 16.6% lower than those of July in the previous year. This decline marked the slowest pace of July home sales since 2010. The drop in sales was observed in all regions except the West, where sales actually increased by 2.7%. The most significant decrease in sales occurred in the Northeast, with a decline of 5.9%.
The dip in sales is attributed to rising mortgage rates during May and June, transitioning from approximately 6.5% to over 7%. These figures indicate closings, suggesting that contracts were probably signed earlier, during the aforementioned months. The National Association of Realtors points to the rise in rates and persistently limited housing supply as the driving factors behind the decline. By the end of July, there were 1.11 million homes available for sale, which is 14.6% fewer than the count in July 2022, reaching the lowest level since 1999. Notably, the current housing inventory is half of what was available before the Covid-19 pandemic.
At the current rate of sales, the existing inventory represents a 3.3-month supply, whereas a balanced market typically requires a six-month supply to accommodate both buyers and sellers effectively. The shortage in housing supply continues to drive increased competition and higher prices. The median selling price for homes in July was $406,700, reflecting a 1.9% increase from the previous July.
Although the West stands as the region with the highest prices, it also experienced a slight decrease in prices, as noted by Lawrence Yun, the chief economist of the National Association of Realtors. In contrast, prices in all other regions saw year-over-year increases, except for the West, where prices remained unchanged.
Around 75% of the homes sold were on the market for less than a month, a testament to the ongoing robust demand. Furthermore, approximately 30% of these homes were sold above their listed prices. The demand remains strong as many homeowners choose to stay put, enjoying their current residences, particularly those with lower mortgage rates, which further limits available options for buyers.
The decline in sales was seen across various price categories, although the highest price category of homes over $1 million experienced the least significant drop. This is due to a relatively larger supply of high-end homes compared to the lean supply in the lower end of the market.
Cash transactions continue to be advantageous for buyers seeking a competitive edge, constituting 26% of all transactions in July. This percentage remained consistent with June figures but was higher than the 24% recorded in July 2022. Investors, who often prefer cash transactions, accounted for 16% of home purchases in July, showing a decrease from 18% in June but an increase from 14% in July 2022.
First-time buyers are making a stronger presence in the market, with 30% of sales going to this demographic, up from 27% in June. Demand for Federal Housing Administration loans, known for their low down payment requirements and favored by first-time buyers, is also on the rise.
As the housing market approaches the fall season, it stands at a crucial juncture. Factors such as higher mortgage rates, particularly, could sway the decision between renting and buying, especially in markets where rents are declining and new apartment options are becoming available.
(Source: Diana Olick | CNBC)
