July Recorded the Lowest Home Sales for the Month Despite a 0.6% Increase from June, with 60,000 Buyers Exiting Due to Inflation Pressures

The hous­ing mar­ket in July expe­ri­enced a para­dox. Exist­ing home sales saw a slight increase of 0.6% from the pre­vi­ous month, yet this mod­est gain occurred against the back­drop of the low­est July sales fig­ures on record, dat­ing back to 2012. The sea­son­al­ly adjust­ed annu­al rate for home sales fell to 4.09 mil­lion units, reflect­ing a 2% year-over-year decline. This is the small­est num­ber of sales record­ed for July since data col­lec­tion began over a decade ago.

Pend­ing sales, an indi­ca­tor of future mar­ket activ­i­ty, also showed an alarm­ing trend. They dropped by 2.9% from June and 5.8% from the pre­vi­ous year, mark­ing some of the most sig­nif­i­cant declines in near­ly a year. This decline is a key indi­ca­tor of decreas­ing buy­er inter­est despite recent drops in mort­gage rates. The aver­age rate on a 30-year fixed mort­gage fell to 6.49% in July, a sig­nif­i­cant drop from the peak of 7.22% seen ear­li­er in the year.

So why are buy­ers stay­ing on the side­lines? The answer is mul­ti­fac­eted. Although mort­gage rates have decreased, high home prices remain a per­sis­tent barrier. 

In July, the medi­an sale price of homes rose to $439,170, up 4.1% from the pre­vi­ous year and only slight­ly below the all-time high set last month. This price pres­sure con­tin­ues to strain poten­tial buy­ers, despite the reduced cost of borrowing.

Eco­nom­ic uncer­tain­ty is anoth­er fac­tor influ­enc­ing buy­er behav­ior. The polit­i­cal cli­mate and infla­tion­ary pres­sures are mak­ing poten­tial home­buy­ers wary. Even though infla­tion eased slight­ly in July to 2.9% from 3.0% in June, it remains a sig­nif­i­cant concern. 

High infla­tion, cou­pled with a slug­gish reduc­tion in inter­est rates, con­tributes to a broad­er sense of uncer­tain­ty in the hous­ing market.

Adding to the com­plex­i­ty, a record 60,000 buy­ers with­drew from their home-pur­chase agree­ments in July. This rep­re­sents 16% of homes that went under con­tract, the high­est can­cel­la­tion rate for any July on record. This spike in can­cel­la­tions is par­tic­u­lar­ly notable in regions with ris­ing hous­ing inven­to­ries, such as Flori­da and Texas, where the glut of avail­able homes has failed to attract buy­ers. In Tam­pa, for instance, 21.9% of con­tracts were can­celed, reflect­ing the high­est rate among major met­ro­pol­i­tan areas.

In addi­tion to high prices and infla­tion con­cerns, the hous­ing mar­ket faces a struc­tur­al shift. As observed in recent months, the hous­ing mar­ket is tran­si­tion­ing from a sell­er’s mar­ket to a buy­er’s mar­ket. Homes are lin­ger­ing on the mar­ket longer, and sell­ers are receiv­ing few­er offers. This shift is fur­ther high­light­ed by the increase in unsold hous­ing inven­to­ry, which rose by 3.1% from the pre­vi­ous month.

The increase in inven­to­ry and the slow pace of price adjust­ments are con­tribut­ing to the cur­rent buy­er hes­i­ta­tion, as report­ed by coloradorealtors.com. With more homes avail­able, buy­ers have greater nego­ti­at­ing pow­er, but high prices and ongo­ing infla­tion­ary pres­sures lim­it their abil­i­ty to cap­i­tal­ize on this. Also, the record high can­cel­la­tion rates sug­gest that many buy­ers are not just hold­ing off but active­ly recon­sid­er­ing their home pur­chase deci­sions in the face of eco­nom­ic uncertainty.

The mar­ket cur­rent­ly shows signs of cool­ing; how­ev­er, the over­all envi­ron­ment sug­gests that while some buy­ers might find oppor­tu­ni­ties in increased inven­to­ry and reduced mort­gage rates, many are choos­ing to wait for clear­er sig­nals of sta­bil­i­ty. Still, the per­sis­tence of high home prices and infla­tion­ary pres­sures sug­gests that the hous­ing mar­ket is like­ly to expe­ri­ence con­tin­ued volatil­i­ty in the near term.