Sales of existing homes are increasing for the first time in five months

U.S. sales of previously owned homes rose for the first time in five months in July, suggesting the housing market is on the verge of stabilizing as mortgage rates fall.

The number of contracts rose 1.3% from a month earlier to 3.95 million on an annual basis, according to figures released Thursday by the National Association of Realtors. The pace, the weakest in July since 2010, matched the average forecast from a Bloomberg survey of economists.

“Despite the modest gains, home sales are still sluggish,” NAR chief economist Lawrence Yun said in a prepared statement. “But consumers are certainly seeing more choices, and affordability is improving thanks to lower interest rates.”

The housing market weakened significantly after the Federal Reserve began raising interest rates in early 2022. A mix of high costs and limited supply is the cause of the market malaise. The increase in financing costs led to a reduction in the number of homes for sale an increase in asking prices.

While potential homebuyers are currently awaiting widely expected Fed rate cuts, affordability may slowly improve due to high home prices.

NAR’s report showed that the average sales price rose 4.2% in July from a year earlier to $422,600. That’s a record for any July in NAR data.

Although the stock of available homes increased slightly in July to 1.33 million, it is still well below the pre-pandemic level of more than 1.9 million. That represents a four-month supply at the current sales pace.

Yun said on a call with reporters that a nearly 20% year-over-year increase in inventory indicates some homeowners are willing to give up their 3% mortgages and put their properties on the market.

Affordability for buyers

The combination of high prices and financing costs is contributing to one of the least affordable housing markets ever. According to the latest NAR, the average family earned just 93.3% of the income needed to afford a home in the US in June. affordability index.

While the The mortgage interest rate with a fixed term of 30 years has fallen to 6.5%A survey of mortgage applications by the Mortgage Bankers Association is at the lowest level since February. That suggests potential buyers are waiting for a further drop in borrowing costs and some relief from high asking prices.

The NAR report showed that 62% of homes sold in July were on the market for less than a month – compared to 65% in June – while almost a quarter sold above list price, also lower than the month before.

Properties stayed on the market for an average of 24 days in July, compared to 22 days in June, a further sign of weakening demand.

A new rule regarding the way broker commissions are paid went into effect in August and agents aren’t sure how it will affect home sales in the future, Yun said.

Existing home sales represent the largest share of the U.S. total and are calculated when a contract is closed. The government will announce the sales figures for new homes for July on Friday.