Home sales rebounded in July, but it’s not all good news

U.S. existing home sales rose in July for the first time in five months as declining mortgage rates resulted in a modest uptick in buyer demand.

According to the National Association of Realtors (NAR), the sale of previously owned homes increased by 1.3% in July to a seasonally adjusted annual rate of 3.95 million units.

“Despite the modest gain, home sales are still sluggish,” said NAR chief economist Lawrence Yun. “But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates.”

Sales were up in most regions of the country, led by a 4.3% increase in the Northeast. Sales in the West and South rose by 1.4% and 1.1%, respectively. Midwestern sales were virtually unchanged.

The slightly higher sales figure was one of the only bright spots in the report. NAR said existing home sales were still down 2.5% compared to a year earlier. The sales pace was also the weakest for any July going back to 2010.

While home prices declined slightly compared to June, they were up by 4.2% year over year to $422,600. According to Yahoo Finance, July marked the 13th consecutive month of annual price gains.

Homebuyers continue to be hampered by generational affordability challenges, which stem from limited inventories, rising prices, and still-high mortgage rates. The recent drop in mortgage rates is encouraging, but shouldn’t be viewed as a sign that housing demand will return anytime soon.

Homes are “sitting” on the market for longer

The NAR data showed that the typical home sold in July was on the market for 24 days, a 20% increase from a year earlier.

The Wall Street Journal surveyed homebuyers in parts of the Midwest, which told the publication that “the entire market has kind of settled down recently,” and that “a lot of homes are sitting.”

Buyers who can afford to purchase a home at current prices and mortgage rates aren’t locked into the same bidding wars as they were in months past. These buyers “have a lot more choices,” Christian Ross, an Atlanta-based real estate agent, told the Journal.

Of course, not everyone has this advantage. Buyers who are waiting for affordability conditions to improve are still on the outside looking in. Most Americans are in this camp.

Despite the recent drop in mortgage rates, “homebuyer demand is still in the basement,” according to Reventure App founder Nick Gerli. This explains why mortgage applications are still down 50% from pre-pandemic levels, he said.

Gerli called out publications for “creating the false perceptions of some type of meaningful bounce back in housing interest/demand.”

Moody’s economist Nick Villa believes housing demand will remain in the gutter so long as mortgage rates are higher than 5.25%. As of last week, the typical 30-year fixed-rate mortgage was just under 6.5%, according to Freddie Mac.