Existing-home sales fell for the sixth-straight month in July, a new housing report showed, as higher mortgage rates continue to push would-be buyers to the sidelines.
Sales of existing homes dropped 5.9 percent last month from June, to a seasonally adjusted annual rate of 4.81 million, the National Association of Realtors reported on Thursday. Sales in July were 20.2 percent lower than they were one year ago, the report said.
“The surge in mortgage rates and gas prices combined with the stock market sell-off have thrown a bucket of ice water on a formerly red-hot housing market,” said Bill Adams, the chief economist for Comerica Bank, a national lender based in Dallas.
But that picture could be shifting. Gas prices have been steadily retreating, falling below $4 a gallon, and the stock market has been rebounding. More important for housing, mortgage rates have followed an unsteady path downward in the last two months.
On Thursday, the mortgage insurance giant Freddie Mac reported that the average rate on a 30-year fixed-rate mortgage had dropped to just over 5.1 percent. That’s down from a peak in mid-June of 5.8 percent, which was the highest average rate home buyers had encountered since 2008.
“That is good news for buyers,” said Jeff Tucker, a senior economist for the real estate marketplace Zillow. “But rates are sill much higher than they were last year.”
He said that the current relatively high mortgage rates, which were at 2.86 percent for a 30-year fixed-rate mortgage at this time last year, were discouraging renters from buying a home. But he added that the slowdown in sales could lead sellers to lower their price or spruce up their homes to make it easier to sell.
“Prices are entering a bit of soft patch, there is potential for declines in the coming months,” he said. “Buyers are going to see bargains in the next few months at the national level.”
Federal Reserve officials are also predicting a continued slowdown in the housing market, according to the minutes from their meeting in July, which were released on Wednesday. The market has shown conflicting signals — home sales have slowed, while housing prices remain high — but a mere slowdown is unlikely to stop the Fed in its crusade to crush inflation, which has led to an increase in interest rates, putting pressure on mortgage rates.
Fed officials think inflation remains too high, according to the minutes, and they are committed to raising interest rates, which they are almost certain to do when they meet next month.
Central bank policymakers did see trouble coming in housing, saying activity had “weakened notably,” largely because of higher mortgage rates. Meeting participants “anticipated that this slowdown in housing activity would continue,” the minutes said.
Many have predicted that the Fed’s efforts to slow inflation would cause housing prices to crash, after a big run-up during the pandemic. And a housing bust might force the Fed to stop raising interest rates, perhaps before it was able to tame inflation.
A report from Fitch this week said that the Fed’s interest-rate moves had indeed made housing prices more likely to fall, and put the largest plausible drop at 15 percent. That would be a loss of around $60,000 for the average American homeowner, which is significant, but less than the nearly $120,000 that the average U.S. home gained in value in the past two years.
Even though activity in the housing market has slowed, it’s far from a bust. Housing starts dropped just over 8 percent in July from the year before, but they’re still about 50 percent higher than what they were at the start of the pandemic, and three times the level they fell to after the 2008 housing crisis.
Other factors may stop any slowdown from turning into a slump. There hasn’t been anywhere near the excess of lending that there was in the 2000s. And in the long term, demand will still far outpace supply, which is likely to keep prices high.
Nonetheless, following the release of housing data on Thursday, many analysts reiterated their guidance not to expect a rebound in the market this year.
“Though mortgage rates and home prices eased slightly in July, potential home buyers remain sidelined, and affordability continues to weigh on home sales,” Matthew Martin, the U.S. economist at the forecasting firm Oxford Economics, wrote in a note to clients. “Our baseline forecast shows a downward trend in sales for the remainder of 2022.”