Existing home sales in the US declined for a second consecutive month as higher borrowing costs and limited housing supply continued to keep buyers on the sidelines. The latest figures from the National Association of Realtors (NAR) showed that sales fell 1.7% to a seasonally adjusted annual rate of 4.06 million units. 
The decline was slightly sharper than the 4.05 million-unit pace economists surveyed by Reuters had expected. Despite the monthly fall, existing home sales were 0.7% higher than a year earlier. NAR data also shows that sales so far this year are up 2.4%, indicating some improvement from the weak levels seen in recent years. 
Mortgage rates remain a major constraint on the market. The average rate on a 30-year fixed mortgage recently stood at 6.69%, the highest level in more than a year. Rates have risen after briefly easing, while higher oil prices linked to the Middle East conflict have added pressure to borrowing costs. 
The increase in mortgage rates is also affecting existing homeowners. Many owners who secured mortgages below 5% during the pandemic have little incentive to sell and take on a new loan at a substantially higher rate. This has kept a large number of homes off the market and further restricted supply. 
The shortage is particularly visible at the lower end of the market. Sales of homes priced at USD 250,000 or below have remained weak because of the limited availability of starter homes. In contrast, homes priced at USD 750,000 and above recorded double-digit sales growth. The difference reflects the wider affordability gap, with higher-income households in a stronger position to purchase homes and benefit from gains in financial markets. 
The inventory of existing homes fell 1.9% to 1.54 million units. Supply was also 0.6% lower than a year earlier. At the current sales pace, the available inventory would last about 4.6 months, unchanged from the previous month and the same period a year earlier. 
The median price of an existing home increased 2% from a year earlier to USD 434,100. Although this was below the recent record of USD 440,600, prices have continued to rise on an annual basis, extending the run of year-over-year price increases. NAR's affordability index also improved from a year earlier, but borrowing costs and the lack of lower-priced homes continue to limit access for many buyers. 
Regional performance was mixed. Existing home sales increased in the Northeast, remained unchanged in the West and declined in both the Midwest and South. The South continued to account for the largest volume of sales, with an annualised pace of 1.86 million units, while the Northeast recorded a pace of 500,000 units. 
First-time buyers accounted for 29% of existing-home purchases, down from 33% in the previous month and only slightly above the year-earlier level. NAR has indicated that a share of about 40% would be needed for a healthier housing market. The median time properties remained on the market also increased slightly to 29 days from 28 days. Distressed sales, including foreclosures, remained at 2%. 
The weakness in existing home sales comes despite a recovery in residential investment, which includes homebuilding and home sales. Residential investment rebounded in the second quarter after declining for five consecutive quarters. Economists, however, viewed the improvement cautiously because affordability remains a major barrier for potential buyers. 
The current housing environment is also different from the conditions that prevailed before the pandemic. Existing home sales have remained below an annual pace of 5 million units for about four years. NAR's earlier market assessments had pointed to high mortgage rates and low inventory as the main reasons for the prolonged slowdown. 
There was more positive news from the US small business sector. The National Federation of Independent Business (NFIB) Small Business Optimism Index increased 2.4 points to 99.8, its highest reading in 11 months and above its 52-year average of 98.0. The employment index also increased 1.9 points to 102.1 after declining for four consecutive months. 
The improvement was driven in part by stronger hiring intentions. The share of small business owners planning to add jobs over the next three months increased by 9 percentage points to 20%, the highest level since late 2022. Plans to increase employment were among the main improvements recorded in the survey, suggesting that small businesses remain willing to expand their workforce despite wider concerns about the labour market. 
However, finding workers remains a problem for many businesses. The share of owners reporting job openings they could not fill rose to its highest level in more than a year. Businesses reported shortages across both skilled and unskilled positions. 
Labour availability has become an increasingly important concern across sectors including construction and agriculture. Small business owners reported difficulty finding qualified workers, with some pointing to a shrinking pool of available labour and greater difficulty finding suitable candidates. 
The stronger hiring intentions also come after a weaker-than-expected government employment report, which showed a decline in nonfarm payrolls and downward revisions to employment figures for earlier months. Economists have linked some of the weakness to labour shortages. The US labour force has contracted by more than one million people this year, with retirements and tighter immigration policies contributing to the decline. 
For the housing market, the combination of high mortgage rates and restricted supply continues to keep both buyers and sellers cautious. NAR has previously projected that a return of mortgage rates towards 6% could provide stronger support to sales by improving affordability and encouraging more existing homeowners to put their properties on the market. 
Source Reuters