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The real estate market experienced a decline in the sales of previously owned homes during July. According to the National Association of Realtors, sales dropped by 2.2% from June, resulting in a seasonally-adjusted, annual rate of 4.07 million units. Compared to July of the previous year, sales were down by 16.6%. Notably, this July witnessed the slowest pace of home sales since 2010.
It is important to note that these figures represent closings, indicating that most contracts were likely signed in May and June, when mortgage rates increased from around 6.5% to well over 7%.
In terms of regional performance, home sales fell in all areas except for the West, where they saw a rise of 2.7%. The Northeast experienced the biggest drop at 5.9%.
According to the National Association of Realtors, the decrease in sales can be attributed to higher mortgage rates and a persistently tight housing supply. At the end of July, there were only 1.11 million homes available for sale, which is 14.6% fewer than in July 2022 and approximately half of the pre-Covid supply. In terms of months of supply, the current rate indicates a 3.3-month supply, with a balanced market typically having a 6-month supply.
The scarcity of available homes continues to drive up competition and prices. The median price of a home sold in July was $406,700, representing a 1.9% increase compared to the same period last year. Interestingly, although the West is the most expensive region, it experienced stagnant prices in July.
The demand for housing remains strong, with around 75% of homes sold spending less than a month on the market. Additionally, approximately 30% of homes sold above their list price, indicating fierce competition among buyers.
Danielle Hale, chief economist at Realtor.com, explains that homeowners are opting to stay in their current homes due to low mortgage rates, resulting in limited options for home seekers.
While sales declined across all price categories, high-end homes above $1 million experienced the smallest decrease. This is due to the larger supply available in the luxury market, while the lower end of the market faces scarcity.
Buyers are increasingly leveraging cash transactions to gain a competitive advantage. In July, all-cash sales accounted for 26% of transactions, consistent with June but higher than the 24% recorded in July 2022. Investors, who tend to rely on cash, purchased 16% of homes in July, showing a slight decrease from June but an increase from July 2022 at 14%.
Furthermore, first-time buyers are returning to the market, representing 30% of sales in July compared to 27% in June. The demand for FHA loans, which offer low down payment options favored by first-time buyers, is also on the rise.
Looking ahead, Lisa Sturtevant, chief economist at Bright MLS, highlights that the housing market is at a critical point as fall approaches, notably due to higher mortgage rates. This may sway some consumers towards renting, especially in markets where rents are decreasing and new apartments are becoming available.
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