The National Association of Realtors reported that US existing home sales slipped 1.7% in July to a seasonally adjusted annual rate of 4.06 million units, down from a revised 4.13 million in June and marking the lowest level since April. This decline reflects ongoing affordability challenges as mortgage rates remain near multi-year highs and median home prices continue to reach record levels.
According to Freddie Mac, the average 30-year fixed mortgage rate averaged 6.81% in July, up from 6.73% in June and significantly higher than the 5.13% recorded a year earlier. These elevated borrowing costs have priced out many prospective buyers, particularly first-time purchasers, despite steady job growth and wage gains in the broader economy.
Lawrence Yun, chief economist at the National Association of Realtors, stated, Higher mortgage rates are clearly weighing on buyer enthusiasm, and until we see a meaningful decline in rates, sales activity is likely to remain subdued. He added that inventory constraints continue to exacerbate affordability pressures, with unsold homes representing a 4.2-month supply at the current sales pace.
The 0.7% year-over-year increase in sales masks deeper weakness, as the gain is largely attributed to unusually low transaction volumes during the summer of 2023 when rates surged past 7%. Month-over-month declines in three of the past four months suggest a persistent drag on the housing market from financing costs.
Regionally, sales fell in three of the four major US regions, with the Northeast and Midwest experiencing the steepest drops at 3.4% and 2.8% respectively. The South saw a modest 0.5% decline, while the West was the only region to post a gain, rising 1.2% as slightly lower prices relative to other markets offered some relief.
Mortgage Rates Remain Key Variable for Housing Outlook
Looking ahead, housing analysts widely agree that the trajectory of mortgage rates will be the dominant factor influencing home sales through the remainder of 2024. If inflation continues to cool and the Federal Reserve begins cutting rates as expected in September, borrowing costs could decline, potentially reigniting buyer demand later in the year.
However, even with rate cuts, home prices are likely to remain elevated due to limited housing supply, meaning affordability may not improve significantly without a substantial increase in new construction or a surge in listings. Until then, the existing home market is expected to remain sensitive to monthly fluctuations in mortgage rates, with any upward movement likely to trigger further sales declines.
Key questions
- Why did US existing home sales decline in July 2024?
- US existing home sales fell 1.7% in July to 4.06 million units due to rising mortgage rates and record home prices, which reduced buyer affordability. The National Association of Realtors cited higher borrowing costs as the primary factor suppressing demand, despite a slight year-over-year increase in sales.
- What is the outlook for the US housing market in the second half of 2024?
- The outlook hinges on mortgage rate trends; if the Federal Reserve cuts rates as anticipated, borrowing costs could decline and stimulate buyer demand later in 2024. However, limited housing supply and persistently high home prices may constrain affordability improvements, keeping the market sensitive to rate fluctuations.
