Existing-home sales in July fell to their slowest pace since the early months of the pandemic as the impact of a big jump in mortgage rates hit buyer demand, the National Association of Realtors said Thursday.
Homes last month were sold at a seasonally adjusted annual rate of 4.81 million, falling from a revised rate of 5.11 million in June. The reading was below consensus expectations, which called for a rate of 4.85 million, according to FactSet.
The figure represents more downbeat news about the housing market, which has been slowing down as higher rates and home prices constrict buyer demand. Gauges of new single-family home construction in July, released earlier this week, dropped to their lowest level since June 2020, while home builder sentiment turned pessimistic for the first time since spring 2020.
In July, the median existing-home sale price was $403,800, representing year-over-year growth of 10.8%—the slowest such gain since July 2020, according to historic data. Prices were down from June’s $413,800—a common occurrence during this period of the year, Lawrence Yun, the National Association of Realtors’ chief economist, said.
Despite the slowdown in sales pace, homes sold quickly in July. Homes typically spent 14 days on the market in the month, tied with June for the fewest days on the market since the trade group started tracking the metric in 2011. There were 1.31 million units on the market at the end of July, an increase of 4.8% from June and level with the same month last year.
Yun said the trade group considers the supply of homes, which represents 3.3 months of unsold inventory, tight. That could be due in part to a so-called “lock-in effect,” Yun said, where homeowners who secured low mortgage rates during the pandemic by buying a home or refinancing their mortgage are unwilling to sell.
Indeed, mortgage rates are higher than they were one year ago. The average rate on a fixed 30-year mortgage was 5.13% this week, according to Freddie Mac , more than 2 percentage points higher than the same week one year ago but lower than the 5.81% rate seen earlier this year. “Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year,” Freddie Mac chief economist Sam Khater said.
Lower rates could bring buyers back to the market, the National Association of Realtors’ Yun said. “Home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers,” he said.
Higher mortgage rates and home prices have led some to back out of contracts. A Redfin analysis found that the share of canceled agreements to purchase a home increased in July to its greatest share since April 2020. The news follows an increase in cancellations seen by home builders in the second quarter.
Leading data show that home sales are likely to remain low for some time. The Mortgage Bankers Association’s index tracking applications for a loan to purchase a home declined last week to its lowest level since April 2020, according to data published Wednesday. “Home purchase applications continued to be held down by rapidly drying up demand, as high mortgage rates, challenging affordability, and a gloomier outlook of the economy kept buyers on the sidelines,” Joel Kan, the trade group’s associate vice president of economic and industry forecasting, said.
The slowdown could reverse, Kan noted. “If home price growth slows more significantly and mortgage rates move lower, we might see some purchase activity return later in the year,” he said.