In July, the U.S. housing market showed signs of stabilization, with sales of previously owned homes increasing for the first time in five months. This uptick suggests that the market may be finding its footing as mortgage rates begin to decline.
According to the National Association of Realtors (NAR), contract closings rose by 1.3% from the previous month, reaching an annualized rate of 3.95 million. Although this is the slowest pace for any July since 2010, it aligns with the median forecast in a Bloomberg survey of economists.
NAR’s Chief Economist, Lawrence Yun, noted that while the increase in sales is modest, the market remains sluggish. However, Yun highlighted that consumers are beginning to see more options, and affordability is gradually improving due to the easing of interest rates.
The residential real estate market has been under significant pressure since the Federal Reserve began raising interest rates in early 2022. The combination of high borrowing costs and a limited supply of homes has contributed to the market’s challenges. As mortgage rates rose, the number of properties for sale decreased, leading to higher asking prices.
Currently, potential homebuyers are eagerly anticipating expected rate cuts from the Fed. However, improvements in affordability may be slow to materialize due to persistently high home prices.
The NAR report revealed that the median sales price in July increased by 4.2% from the previous year, reaching $422,600—a record for any July in NAR’s data. Although the inventory of available homes increased slightly in July to 1.33 million, it remains well below pre-pandemic levels, which exceeded 1.9 million. This current inventory represents a four-month supply at the current sales pace.
Yun mentioned in a call with reporters that the nearly 20% year-over-year increase in inventory suggests some homeowners are willing to list their properties despite holding onto lower mortgage rates from previous years.
Buyer Affordability
The current housing market is one of the least affordable in history, driven by a combination of high prices and elevated borrowing costs. The NAR’s affordability index indicates that the typical family in June earned only 93.3% of the income required to afford a median-priced U.S. home.
While the 30-year fixed mortgage rate has recently dipped to 6.5%, a gauge from the Mortgage Bankers Association shows that home-purchase applications are at their lowest level since February. This suggests that potential buyers may be holding off on purchases, waiting for further declines in mortgage rates and some relief from high asking prices.
The NAR report also highlighted 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 homes sold above the list price, a slight decrease from the previous month. The average time properties remained on the market increased to 24 days in July, up from 22 days in June, indicating a softening in demand.
Looking ahead, a new rule regarding how broker commissions are paid took effect in August. Yun mentioned that agents are uncertain about how this change will impact home sales in the future. Existing-home sales, which account for the majority of U.S. total sales, are recorded when contracts close. The government is set to release July’s new-home sales data on Friday, providing further insights into the housing market’s trajectory.
Analysis and Market Opportunity
The recent increase in existing-home sales suggests a potential stabilization in the housing market, which could present opportunities for investors. If mortgage rates continue to decline as expected, affordability may improve, potentially leading to increased demand and higher home prices in the future.
For prospective homebuyers, the current environment presents a window of opportunity. As mortgage rates have dipped slightly, locking in a lower rate now could provide long-term savings. Additionally, with some properties remaining on the market longer and fewer selling above the list price, buyers may find themselves in a stronger negotiating position.
From an investment perspective, real estate-related stocks and mortgage-backed securities could benefit from any further stabilization in the housing market. As the market adjusts to lower rates and a potential increase in inventory, there could be gains for those positioned to capitalize on the improving conditions.
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