Record House Prices Depress US Home Sales in June

The fourth straight monthly decline in home resales reported by the National Association of Realtors on Tuesday added to weak homebuilding and permits data in suggesting that the housing market contracted in the second quarter after providing a boost to economic growth in the January-March quarter.

“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. “The more recent decline in mortgage rates, which we expect to gain steam as interest rate cuts by the Federal Reserve get underway, will support a modest rebound in home sales later in the year.”

Home sales dropped 5.4 per cent last month to a seasonally adjusted annual rate of 3.89 million units, the lowest level since December. Economists polled by Reuters had forecast home resales would slip to a rate of 4.00 million units.

The median existing home price soared 4.1 per cent from a year earlier to an all-time high of $426,900. Despite house prices scaling a record high for the second straight month, the pace of increase has slowed, with supply near a four-year high.

Home resales, which account for a large portion of US housing sales, declined 5.4 per cent on a year-on-year basis in June.

Existing home sales are counted at the close of a contract. Sales in June likely reflected contracts signed in the prior two months, when the average rate on the popular 30-year fixed-rate mortgage was above 7.0 per cent.

The average rate on a 30-year fixed-rate mortgage dropped to a four-month low of 6.77 per cent last week, down from 6.89 per cent the prior week and matching the average during the same period in 2023, data from mortgage finance agency Freddie Mac showed.

It has eased from a six-month high of 7.22 per cent in early May amid hopes that the Federal Reserve will deliver a long-awaited interest rate cut in September. The housing market has been hardest hit by the US central bank’s aggressive monetary policy tightening to quell inflation.

Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. US Treasury yields dipped.

SUPPLY INCREASES

Sales tumbled 5.9 per cent in the densely populated South. They plunged 8.0 per cent in the Midwest, which is considered the most affordable region. Sales fell 2.1 per cent in the Northeast and decreased 2.6 per cent in the West.

Housing inventory increased 3.1 per cent to 1.32 million units last month, the highest level since October 2020. Supply jumped 23.4 per cent from one year ago. A surge in insurance premiums across the country as weather-related claims rise is forcing some homeowners to put their properties on the market.

Nonetheless, entry-level homes remain in short supply and there is not enough new construction. The government reported last week that single-family homebuilding fell to an eight-month low in June, while permits for future construction were the lowest in a year. Many homeowners have mortgage rates under 5 per cent.

Economists estimated that residential investment, which includes home building and sales, likely subtracted from gross domestic product last quarter, after adding more than half a percentage point in the January-March quarter.

The government is scheduled to publish its snapshot of second-quarter growth on Thursday. Growth estimates for the second quarter are around a 2 per cent annualized rate. The economy grew at a 1.4 per cent pace in the first quarter.

At June’s sales pace, it would take 4.1 months to exhaust the current inventory of existing homes. That was the highest level since May 2020, and was up from 3.1 months a year ago. A four-to-seven-month supply is viewed as 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 per cent of sales versus 27 per cent a year ago.

That share remains below the 40 per cent that economists and realtors say is needed for a robust housing market.

All-cash sales made up 28 per cent of transactions, up from 26 per cent a year ago. Distressed sales, including foreclosures, represented 2.0 per cent of transactions, unchanged from last year.

Source: Reuters