July Sees Continued Home Sales Decline Amidst Supply Drop

Home sales of pre-owned homes fell by 2.2% in July, reaching an annualized rate of 4.07 million units, marking a 16.6% decline from July the previous year. This slowdown was most pronounced in the Northeast, with a 5.9% drop in sales. The National Association of Realtors attributes this decline to higher mortgage rates and an ongoing shortage of available homes, with only 1.11 million homes for sale in July, the lowest level since 1999.

This limited supply continues to drive competition and prices higher, with the median home price reaching $406,700, a 1.9% increase from the previous year. Despite these challenges, demand remains strong, with approximately three-quarters of homes selling in under a month and about 30% selling above the listing price. Cash transactions accounted for 26% of sales, while investors purchased 16% of homes in July. However, first-time buyers are making a comeback, representing 30% of total sales, up from 27% in June, potentially due to increased demand for Federal Housing Administration loans offering low down payments. The housing market’s future trajectory may be influenced by rising mortgage rates and rental market dynamics, particularly regarding the choice between renting and buying.

Redfin: New Construction Accounts for Over 30% of Single-Family Market

Redfin said that newly built homes comprised 31.4% of the single-family housing market in the second quarter, primarily due to continued supply constraints. This percentage greatly exceeds the pre-pandemic figure of 17% in Q2 2019 and exceeds the 30.3% observed a year earlier. Although slightly less than the almost record-high 33.6% for the previous quarter, this fall is attributed to a regular seasonal tendency.

The housing market’s limited supply is related to the rise in new construction. While existing homeowners are not listing their houses for sale, builders continue to build new homes, making new construction the top option for many buyers. This pattern is influenced by the temptation to acquire a home with compelling advantages despite worrying about price increases. Particular metro areas, such as El Paso, Omaha, Raleigh, Oklahoma City, and Boise, have higher proportions of recently built homes for sale. In contrast, Honolulu, San Diego, Pittsburgh, Oxnard, and Detroit have lower availability. According to the data, noticeable changes have occurred in areas like Tulsa, Richmond, Albany, Phoenix, and Elgin. New construction shares have also decreased in Boise, Austin, Honolulu, Allentown, and Houston.

Year’s Peak in Housing Inventory

The real estate market is experiencing notable changes due to rising mortgage rates. These higher rates lead to reduced affordability, resulting in fewer home purchase offers, a slight increase in unsold inventory, and more frequent price reductions on listed homes. This pattern mirrors what was observed in the previous week. Despite resilient sales in the first half of the year, the market is slowing down again, primarily because mortgage rates have reached their highest level in two decades, dissuading potential homebuyers.

Higher mortgage rates are contributing to an increase in housing inventory, and the market shows signs of a gradual shift. However, the signals of this slowdown are still subtle. The housing market’s dynamics differ significantly from the same period last year when rates climbed sharply, leading to a dramatic increase in inventory. Currently, rates are rising gradually, also causing inventory to rise gradually. A significant shift in inventory and home prices is likely to occur if mortgage rates jump significantly higher, such as reaching 8%. Monitoring these indicators will provide insights into the future of the housing market.

Additionally, the data shows that price reductions are rising, with 35.5% of homes on the market experiencing price cuts. This increase is related to decreased buyer demand as mortgage rates climb. The median price of single-family homes remains stable. In contrast, newly listed homes are priced higher than the previous year, indicating that sellers adjust their prices to match buyer demand. Overall, the housing market is experiencing a subtle slowdown in demand and price appreciation, influenced mainly by fluctuations in mortgage rates.