U.S. existing home sales took a sharper dive than anticipated in June, with median house prices reaching yet another record high. Despite this, a glimmer of hope shines on the horizon as improving supply and decreasing mortgage rates suggest a potential rebound in the coming months.
The National Association of Realtors reported the fourth consecutive monthly decline in home resales on Tuesday. This trend, coupled with weak homebuilding and permits data, indicates that the housing market might have contracted in the second quarter. This is a stark contrast to the growth the housing market provided to the economy in the first quarter of the year.
“Record-high home prices and high mortgage rates weighed on existing home sales in June,” said Nancy Vanden Houten, a senior economist at Oxford Economics. She noted that the recent dip in mortgage rates, expected to continue as the Federal Reserve begins cutting interest rates, could lead to a modest rebound in home sales later in the year.
Home sales plummeted by 5.4% last month, settling at a seasonally adjusted annual rate of 3.89 million units, the lowest level since December. This was a steeper drop than economists had predicted; a Reuters poll had forecast a decline to 4.00 million units.
The median existing home price surged 4.1% from a year earlier, hitting an all-time high of $426,900. While house prices reached a new record for the second consecutive month, the pace of increase has slowed, with supply nearing a four-year high.
Home resales, which make up a significant portion of U.S. housing sales, fell by 5.4% on a year-on-year basis in June. Existing home sales are tallied when contracts close, meaning June’s sales likely reflected contracts signed in the prior two months, during which the average rate on a 30-year fixed-rate mortgage was above 7.0%.
However, there’s a silver lining. The average rate on a 30-year fixed-rate mortgage dropped to a four-month low of 6.77% last week, down from 6.89% the previous week and matching the average rate from the same period in 2023, according to Freddie Mac. This easing from a six-month high of 7.22% in early May is driven by hopes that the Federal Reserve will implement a long-awaited interest rate cut in September. The housing market has borne the brunt of the U.S. central bank’s aggressive monetary policy aimed at quelling inflation.
In response to this news, stocks on Wall Street were trading higher, the dollar strengthened against a basket of currencies, and U.S. Treasury yields dipped.
Sales plummeted by 5.9% in the densely populated South and took an 8.0% nosedive in the Midwest, considered the most affordable region. In the Northeast, sales fell by 2.1%, and in the West, they decreased by 2.6%.
Housing inventory saw a 3.1% increase, rising to 1.32 million units last month, the highest level since October 2020. Supply surged by 23.4% compared to a year ago. This increase in supply is partly due to a spike in insurance premiums across the country, driven by rising weather-related claims, which has compelled some homeowners to sell their properties.
Despite this, entry-level homes remain scarce, and new construction is insufficient. The government recently reported a drop in single-family homebuilding to an eight-month low in June, with permits for future construction hitting a one-year low. Many homeowners are locked into mortgage rates below 5%, contributing to the tight supply.
Economists estimate that residential investment, including home building and sales, likely detracted from gross domestic product (GDP) in the last quarter, following a positive contribution of over half a percentage point in the first quarter.
The government is set to release its second-quarter growth snapshot on Thursday, with growth estimates hovering around a 2% annualized rate. The economy grew at a 1.4% pace in the first quarter.
At June’s sales pace, it would take 4.1 months to deplete the current inventory of existing homes, the highest level since May 2020, up from 3.1 months a year ago. A four-to-seven-month supply is considered a healthy balance between supply and demand.
“We’re seeing a slow shift from a seller’s market to a buyer’s market,” said Lawrence Yun, the NAR’s chief economist. “Supply and demand dynamics are nearing a balanced market condition.”
The median house price increased in all four regions last month. Properties typically stayed on the market for 22 days in June, compared to 18 days a year ago. First-time buyers accounted for 29% of sales, up from 27% a year ago, though still below the 40% mark that economists and realtors consider healthy for a robust housing market.
All-cash sales made up 28% of transactions, up from 26% a year ago, while distressed sales, including foreclosures, remained steady at 2.0% of transactions.
