In July, U.S. existing home sales increased by 1.3% to an annualised rate of 3.95 million units, surpassing expectations of 3.93 million. Despite this, sales are down 2.5% year-over-year. The median price rose to USD 422,600, up 4.26% from last year. The drop in mortgage rates to 6.49% and Federal Reserve signals of potential rate cuts have boosted buyer optimism. However, challenges persist, including rising insurance premiums, low entry-level home availability, and a decline in new single-family home construction. Inventory increased slightly to 1.35 million units, with homes now selling in an estimated 4.0 months.
In July, U.S. existing home sales experienced a surprising uptick, signalling a potential turning point for the housing market after four months of decline. According to the National Association of Realtors (NAR), home sales rose by 1.3%, reaching an adjusted annual rate of 3.95 million units. This increase exceeded economists' predictions, which had anticipated a more modest rise to 3.93 million units.
While the increase is encouraging, year-over-year comparisons reveal that home sales are still facing challenges, down 2.5% from July 2023. The median price for existing homes climbed to USD 422,600, a 4.26% increase compared to the previous year. This rise in prices was noted across all four U.S. regions, indicating a continuing trend of appreciation in property values despite fluctuations in sales activity. Much of this sales activity likely reflects contracts that were signed in earlier months when mortgage rates hovered around 7.0%.
One critical factor contributing to improved sales figures is the decline in mortgage rates. Last week, the average rate for a 30-year fixed-rate mortgage fell to 6.49%, its lowest point in 15 months. This drop is also more than half a percentage point lower than the rates seen at the same time last year. The Federal Reserve's recent signals hinting at a potential interest rate cut in September have further fueled optimism among homebuyers. Lawrence Yun, the NAR's chief economist, noted that while the increase in sales is modest, consumers are benefiting from greater choices and improved affordability.
Despite these positive signs, challenges remain in the housing market. A surge in insurance premiums due to weather-related claims has prompted some homeowners to sell, but the availability of entry-level homes continues to be a significant concern. Data indicates that new single-family home construction fell to a 16-month low in July, affected by external factors such as Hurricane Beryl and an excess of new homes on the market. Additionally, the construction permits issued for future projects have also declined, indicating potential longer-term supply issues.
Current housing inventory saw a slight increase of 0.8% to 1.35 million units last month, with supply up by 19.8% compared to last year. At the current sales pace, homes are expected to sell out in an estimated 4.0 months, which is an increase from 3.3 months in the previous year. Real estate experts suggest that a balanced market typically requires a supply of four to seven months. On a related note, properties were noted to be on the market for an average of 24 days in July, slightly longer than the 20 days reported last year.
First-time buyers, who play a vital role in the housing market, represented 29% of total sales in July, a slight decrease from 30% in the previous year. This figure remains below the 40% threshold that many industry experts indicate is necessary for a healthy market. Furthermore, all-cash sales accounted for 27% of transactions, up from 26% a year prior, while distressed sales, including foreclosures, remained stable at 1.0% of all transactions.
In summary, the recent data on U.S. home sales highlights a complex landscape where optimism touches on the potential for recovery, tempered by ongoing challenges in supply and affordability. As interest rates stabilise and homeowners adjust to new financial realities, the market may continue to see further fluctuations in the coming months. For prospective buyers and sellers, the prevailing conditions warrant careful consideration and strategic planning as they navigate this evolving market.
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