June home sales hit the lowest level in 14 years, signaling a significant drop in pace

The National Association of Realtors reports a 3.3% decline in pre-owned home sales in June, compared to May. This brings the seasonally adjusted annualized rate for June to 4.16 million units. Additionally, sales were 18.9% lower compared to June of the previous year, marking the slowest sales pace for June since 2009.

The housing market’s continued weakness can be attributed to a critical shortage of supply rather than lack of demand. By the end of June, there were only 1.08 million homes available for sale, which is 13.6% less than June of the previous year. This represents a 3.1-month supply at the current sales pace, while a six-month supply is considered ideal.

“There are simply not enough homes for sale,” stated Lawrence Yun, the chief economist for the Realtors. He further added, “The market can easily absorb a doubling of inventory.”

Consequently, this shortage of supply is exerting pressure on home prices. The median price of an existing home sold in June reached $410,200, the second-highest price ever recorded by the Realtors. Although last June witnessed a higher median price, it was only a marginal increase of 1%. However, it’s important to note that this median measure also reflects the types of properties being sold. Currently, the lower end of the market is more active due to higher mortgage rates compared to the previous year.

“Home sales have decreased, but home prices have remained steady in most areas of the country,” claimed Lawrence Yun. He also mentioned that “Limited supply is still resulting in multiple-offer situations, with one-third of homes selling above the list price during the latest month.”

Given the impact of mortgage rates on affordability, it is unlikely that sales will recover in the near future. June sales are measured based on closings, which means that contracts were likely signed in April and May. During that period, mortgage rates ranged in the mid 6% range before sharply increasing to over 7% at the end of May, where they remained throughout June. Consequently, home prices continued to rise.

First-time buyers are facing the most significant challenges. Their share of June sales dropped to 26%, down from 30% in June 2022. This marks the lowest share recorded since the Realtors began tracking this metric.

Meanwhile, the higher end of the market appears to be recovering. While sales declined across all price points, the decline was less pronounced among higher-priced homes. This differs from the previous year, when sales of higher-priced homes plummeted sharply.

In the highly competitive market, buyers are resorting to cash payments to attract sellers. All-cash transactions accounted for 26% of June sales, a slight increase compared to both May and June of the previous year.

Although the existing home market is unlikely to rebound soon, sales of newly built homes are reaping the benefits. Major homebuilder DR Horton reported a significant increase in new orders in its latest earnings release on Thursday.

“Despite higher mortgage rates and inflationary pressures, our net sales orders have risen by 37% compared to the same quarter last year. The limited supply of new and existing affordably-priced homes, combined with favorable demographic factors supporting housing demand, have contributed to this increase,” explained Donald Horton, the chairman of the board, in a statement.