The housing market has experienced a setback as sales of previously owned homes dropped 2.2% in July compared to the previous month. This decline is significant, with sales reaching their slowest pace since 2010. The National Association of Realtors reports that sales were also down 16.6% compared to July of last year. Several factors, including higher mortgage rates and a tight housing supply, have contributed to this decline.
Sales fell month to month in all regions except the West, where they actually saw a slight increase of 2.7%. The Northeast experienced the largest drop in sales, with a decline of 5.9%. The West, despite being the most expensive region, saw a price decline. In contrast, prices in the other regions rose year over year.
The National Association of Realtors points to the tight housing supply as a major factor in the decrease in sales. At the end of July, there were only 1.11 million homes for sale, a 14.6% decrease compared to July 2022. This represents the lowest level of available homes since 1999. The supply of homes for sale is now half of what it was before the Covid-19 pandemic. This limited supply has led to increased competition among buyers and has driven prices higher.
Impact on Prices
The limited supply of homes has had a significant impact on prices. The median price of a home sold in July was $406,700, a 1.9% increase compared to July of last year. However, in the West, prices remained flat. With the strong demand and limited options, roughly three-quarters of the homes sold were on the market for less than a month, indicating a continued high demand. Additionally, approximately 30% of homes sold for above the list price.
Differentiation in Price Categories
While sales fell across all price categories, the decline was least significant in the highest price category, which includes homes priced over $1 million. This is likely because there is more supply available in the high-end market compared to the lower end, which is experiencing the leanest supply.
Influence of Cash Buyers and Investors
Cash buyers continue to play a significant role in the housing market. All-cash sales accounted for 26% of transactions in July, which is the same as in June but an increase from 24% in July 2022. Investors, who typically use cash for transactions, purchased 16% of homes in July, demonstrating a slight decrease from June but an increase from July 2022.
Rise of First-time Buyers and FHA Loans
First-time homebuyers are gaining momentum in the market, representing 30% of total sales in July, up from 27% in June. This trend is driven partly by the increasing demand for Federal Housing Administration (FHA) loans. FHA loans are popular among first-time buyers due to their low down payment requirements. The growing interest in FHA loans suggests that more buyers are entering the market and seeking affordable financing options.
The Future of the Housing Market
As the housing market heads into the fall, there are several challenges that could impact its trajectory. Higher mortgage rates, in particular, may influence the decision between renting and buying for some consumers. In markets where rents are falling and new apartments are becoming available, the decision to rent may become more favorable. The housing market is at a pivotal point, and it remains to be seen how these factors will shape the future.
The recent decline in sales of previously owned homes highlights the challenges faced by the housing market. Factors such as higher mortgage rates and a tight housing supply have contributed to this decline. While the West experienced a slight increase in sales and prices remained flat, other regions saw declines in both categories. Cash buyers and investors continue to be prominent players in the market, while first-time buyers are gaining momentum. The future of the housing market remains uncertain as it navigates various challenges, including the impact of rising mortgage rates.