U.S. Housing Market Sees Sales Rise After Easing Mortgage Rates

U.S. Housing market in July, U.S. sales of previously owned homes saw their first increase in five months, hinting at a potential stabilization in the housing market as mortgage rates begin to ease. This development has raised hopes among industry experts that the market may be finding its footing after a prolonged period of decline.

Sales See Modest Growth

Contract closings increased by 1.3% from last month, reaching an annualized rate of 3.95 million, according to NAR. This figure marks the lowest for any July since 2010. It matched the median estimate from a Bloomberg economist survey. The data suggests the market is progressing as expected.

Despite the slight uptick, the market remains sluggish. NAR Chief Economist Lawrence Yun noted improving affordability due to declining interest rates. Yun mentioned that consumers are seeing more options. However, challenges persist with high costs and limited home supply.

Impact of Federal Reserve’s Rate Hikes

The Federal Reserve’s interest rate hikes, starting in early 2022, have weakened the residential real estate sector. These hikes raised borrowing costs sharply, reducing property availability and increasing asking prices. Consequently, many potential buyers have been priced out of the market. This has led to a downturn in sales.

Even though some potential homebuyers are holding out for rate cuts from the Fed, improvements in affordability may be slow to materialize due to the continued high prices of homes. This has created a challenging environment for both buyers and sellers, as the cost of financing remains elevated.

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Record-High Median Sales Price

The NAR report highlighted that the median sales price in July climbed 4.2% year-over-year to $422,600, setting a new record for any July in the organization’s historical data. This increase underscores the ongoing affordability crisis in the U.S. housing markett, as high prices continue to strain the budgets of many prospective buyers.

In July, home inventory rose slightly to 1.33 million but is still below pre-pandemic levels. This equates to a four-month supply. Yun highlighted that the nearly 20% year-over-year increase indicates some homeowners are listing properties despite low-interest mortgages. Overall, supply remains limited.

Affordability Challenges Persist

High prices and elevated borrowing costs have made the housing market one of the least affordable in history. The latest NAR affordability index shows that in June, a typical family earned only 93.3% of the required income. This income is needed to afford the median-priced home in the U.S. This marks a significant decline in affordability, as the gap between income and home prices continues to widen.

Although the 30-year fixed mortgage rate has decreased to 6.5%, a Mortgage Bankers Association index of home-purchase applications remains at its lowest level since February. This suggests that prospective buyers are waiting for further declines in borrowing costs and some relief from high asking prices before entering the market.

Market Indicators Show Mixed Signals

The NAR report also showed that 62% of homes sold in July were on the market for less than a month, down from 65% in June. Additionally, nearly a quarter of the homes sold above the list price, reflecting a slight softening in demand. Properties remained on the market for an average of 24 days in July, up from 22 days in June, indicating that buyers are becoming more cautious.

A new rule affecting broker commissions took effect in August, causing uncertainty among agents in the U.S. housing market. The impact on future home sales remains unclear, leaving many industry professionals concerned. As these changes unfold, the U.S. housing market continues to navigate the evolving landscape. Existing-home sales, a key component of the U.S. housing market, are crucial in assessing the market’s overall health. The outcome of these developments will be closely watched by those invested in the U.S. housing market.

Looking Ahead

The government will release July’s new-home sales data on Friday, offering further insights into the state of the housing market. As the industry awaits these figures, the modest increase in previously owned home sales in July offers a glimmer of hope that the market may be stabilizing, despite significant challenges.

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