Pending home sales in July witnessed a modest increase of 0.7% from June, reaching the highest point since the beginning of the year, as reported by Redfin. While the sales displayed a positive change month-over-month, they were 5.4% above the low in March and suffered a significant 15.7% decrease compared to the previous year, marking the smallest annual slump since last summer.
The stabilization in sales has come as the initial shock of heightened mortgage rates has begun to wane. Following a drop to 367,000 in March, the lowest since the pandemic began, the number of pending sales has stayed in that ballpark. By July, it was 387,000. High property costs and a shortage of homes on the market have deterred potential buyers.
“Home sales hit a bottom in 2022 and haven’t meaningfully budged since,” said Redfin Chief Economist Daryl Fairweather. “Fading recession fears and the prospect of further home price increases have brought some house hunters off the sidelines, but for the most part, buyers remain hesitant to jump into the market because their buying power is so much lower than it was a year ago.”
The average mortgage rate for a 30-year-fixed loan escalated to 6.84% in July from 5.41% a year ago, even reaching 7.23% recently, a rate not seen since 2001. This and persistently elevated housing prices have significantly augmented the typical homebuyer's monthly mortgage payment.
In July, the median home sale price increased 1.7% year-over-year to $421,872, only 2.5% shy of the record set in May 2022 of $432,476. Even with the lagging buyer demand, housing prices remain elevated due to the scant inventory available, leading to intense competition among potential homeowners.
Mitch Price, a Redfin real estate agent in Salt Lake City, commented on the current market dynamics. “It’s a seller’s market, but only because there’s so little inventory." He pointed out that the sky-high interest rates are sidelining many buyers. “Buyers are getting hammered by high interest rates, so they’re not just jumping on whatever is available like they were before. They don’t want to overpay, so they’re waiting for the right home. As a seller, if you overprice your home, that’s your doomsday ticket
The dwindling housing supply is primarily attributed to the deterrent effect of high mortgage rates on potential sellers. While new listings in July remained relatively unchanged from the previous month, they have plummeted 22.2% from the prior year. The overwhelming majority of homeowners in the U.S. currently enjoy mortgage rates below 6%, a factor discouraging them from selling, as moving would likely result in substantially heftier monthly payments.
