Prices and politics push home sales to new low in July

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Concerns about housing affordability and an upcoming election slowed home sales growth in July, according to the National Association of Realtors' pending home sales report released Thursday.

The Pending Home Sales Index (PHSI) fell 5.5 percent from the previous month to 70.2, the lowest PHSI since the NAR began tracking contract closings in 2001. All four regions experienced monthly declines in July, with the Midwest (-7.8 percent to 67.8) and the South (-6.5 percent to 83.5) posting the largest losses.

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“A recovery in sales failed to materialize in mid-summer,” NAR chief economist Lawrence Yun said in a statement. “The positive impact of job growth and higher inventories could not overcome affordability issues and a certain degree of wait-and-see related to the upcoming U.S. presidential election.”

Several economists said home sales would not improve until average existing home prices and mortgage rates fell significantly.

Odeta Kushi, deputy chief economist at First American, said a decline in purchase mortgage applications “confirms [the] disappointing news” about upcoming home sales. The Mortgage Bankers Association's latest survey found that purchase mortgage applications fell 9 percent year-over-year, even though mortgage rates have fallen 80 basis points over the past year.

“Average monthly purchase applications declined in July and August despite falling mortgage rates and rising housing inventory,” she said in an emailed statement. “Modest improvements in affordability may not be enough to significantly boost demand as household incomes remain tight relative to mortgage payments.”

Hannah Jones, senior economic analyst at Realtor.com, echoes Kushi, saying that a large portion of homebuyers simply cannot afford to “participate in today's market,” and that this frustration will continue to be reflected in upcoming sales until affordability improves.

“The recent improvement in mortgage rates has boosted buyer demand to some extent, but many buyers are waiting for a stronger rate move before entering the market,” she said in an emailed statement. “As in recent years, today's housing market hinges on affordability.”

“Although inventory has improved significantly year-over-year and homes are on the market longer, today's home prices have not declined significantly from last year's levels and are only a few thousand dollars below the 2022 peak,” she added. “As a result, many buyers, while eager, still cannot afford to participate in today's market, and home sales, including pending home sales, are still below last year's levels.”

None of the economists said what the magic mortgage rate would be, but a survey of 3,000 working U.S. adults conducted on August 27 by Inman Intel and Dig Insights found a range of 5.5 to 5.0 percent.

“If mortgage rates fell below 5.0 percent, 25 percent of renters would seriously reconsider their intentions to buy in the next 12 months,” the survey says. “But interest rates below 5 percent would only cause 16 percent of homeowners who are hesitant to buy in the next year to reconsider.”

Even if interest rates fell below 5 percent, the shortage of existing properties would likely prevent the market from experiencing the sales boost that real estate agents had hoped for.

“More new construction could be one piece of the puzzle,” the survey continues. “But if builders can't keep up, rates may have to fall to 4 percent or less before renters and homeowners warm to the housing market at similar rates.”

Email Marian McPherson