Existing home sales decline once again. The decrease in home sales in July could be attributed to the drop in housing supply. This can impact the overall real estate market and potentially affect property prices.
The National Association of Realtors reported a 2.2% decrease in existing home sales in July compared to June. That resulted in a seasonally adjusted annual rate of 4.07 million units.
Compared to July of the previous year, there was a significant decline of 16.6% in existing home sales. This July also saw the slowest pace of home sales since 2010.
The National Association of Realtors attributes the existing home sales decline to elevated rates and ongoing supply constraints.
These figures pertain to completed home sales, indicating that agreements were probably made in May and June. During that period, mortgage rates increased from approximately 6.5% to a level surpassing 7%.
Decline of Existing Home Sales in Different Segments
Existing home sales experienced declines in all price segments. However, the drop was comparatively smaller in the highest price bracket. Specifically for homes priced over $1 million, the drop was negligent. This can be attributed to the greater availability of properties on the higher end of the market.
However, the scarcity of homes is more pronounced in the lower-priced segment.
Except for the West, which saw a 2.7% increase, existing home sales declined in all regions from the previous month. The Northeast experienced the most significant drop, with a decrease of 5.9% in sales.
By the end of July, the number of homes available for sale was 1.11 million, reflecting a 14.6% decrease compared to July 2022 and marking the lowest point since 1999. The current inventory is just half of what it was before the onset of the Covid pandemic.
Given the present rate of sales, these amounts represent a 3.3-month supply. A balanced market for buyers and sellers is typically achieved with a six-month supply.
The persistent shortage of supply continues to drive up competition and prices. In July, the median home price for sold properties reached $406,700, marking a 1.9% rise compared to July of the previous year.
Lisa Sturtevant warned about the Crucial Junction in the housing market
Lisa Sturtevant, the chief economist at Bright MLS, emphasized that the housing market is at a crucial juncture as the fall season approaches. She highlighted the impact of elevated mortgage rates, suggesting that this could influence the choice between renting and buying for certain consumers. In markets where rents are declining, and new apartment developments are being introduced, the balance might shift in favor of renting, presenting potential challenges to the housing sector.
Lawrence Yun, the chief economist for the National Association of Realtors, highlighted that while the Western region is the most expensive area, it has also seen a decline in prices. This observation sheds light on the complex dynamics within the real estate market, where high costs and price fluctuations coexist.
Exceptional Demand for Homes in between the price hike
As with the existing home sales number, except for the West, where prices remained unchanged, all regions experienced a year-over-year price increase during July. This indicates that the real estate market saw price growth across most areas, underscoring regional variations in housing trends.
Approximately 75% of the homes sold had a listing duration of less than a month, suggesting a robust demand for housing. Additionally, around 30% of these homes were sold above their listed prices, underscoring the market’s competitive nature. Also, that’s above the willingness of buyers to pay premiums.
First-time purchasers seem to be picking up pace once more. According to realtors, these buyers accounted for 30% of sales, up from 27% in June.
Loans from the Federal Housing Administration are also in greater demand. The low down payment requirements of these loans make them popular with first-time purchasers.
Interestingly, there’s a growing demand for Federal Housing Administration (FHA) loans. These loans, known for their low down payment requirements, are particularly favored by first-time buyers, indicating their interest in entering the housing market.
All Cash Transactions Ramping Up More and More
Buyers are still leveraging cash to secure a competitive edge in the market. Transactions involving all-cash payments constituted 26% of the total, maintaining the same percentage as June but showing an increase from 24% in July 2022.
Notably, investors, who frequently opt for cash transactions, accounted for 16% of home purchases in July. While this percentage saw a slight reduction from 18% in June, it grew from the 14% recorded in July 2022. This suggests a continued interest in real estate investment despite some fluctuations.