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Home Sales Tick Up as Mortgage Rates Fall

The housing market saw a glimmer of hope in July as existing home sales edged up, fueled by a decline in mortgage rates.

• Sales of previously owned homes rose 1.3% in July compared to June, reaching a seasonally adjusted annual rate of 3.95 million units, according to the National Association of Realtors (NAR).
• This marked the first increase in five months, indicating a possible shift in the market's trajectory.
• However, sales remained 2.5% lower than the same period last year.

Mortgage Rates Impact Affordability and Demand

The recent decline in mortgage rates, which have been hovering around 6.5% after dipping from over 7% in the spring, has significantly impacted affordability and demand in the housing market.

• The lower rates have made homeownership more accessible, encouraging potential buyers to re-enter the market.
• This, combined with increased inventory, has led to a surge in requests for home tours and other buying services, signaling a potential resurgence in buyer activity.

Home Supply and Demand Dynamics

The supply of homes for sale has been steadily increasing, providing more options for buyers. But despite the growing inventory, the market is still considered sluggish.

• The number of homes available for sale rose by 0.8% in July compared to June, reaching 1.33 million units.
• This represents a four-month supply, slightly lower than June's supply.
• While the increase in supply has not yet cooled home prices, it has provided more choices for buyers, putting downward pressure on price growth.

Home Prices Remain Elevated

Despite the increase in housing supply, home prices have remained elevated.

• The median price of an existing home sold in July was $442,600, up 4.2% year-over-year.
• This indicates that while lower mortgage rates have boosted demand, the overall housing market remains tight, and sellers are still able to command premium prices.

First-Time Buyers and Market Trends

First-time buyers continue to face challenges in the housing market, as affordability remains a significant concern.

• First-time buyers made up 29% of sales in July, unchanged from June but down from 30% in July 2023.
• Historically, these buyers have comprised closer to 40% of home sales, but rising prices and higher mortgage rates have limited their participation in the market.
• As mortgage rates continue to decline and affordability improves, it is possible that first-time buyer participation will start to rise again.

All-Cash Offers Increasing

All-cash offers continue to play a significant role in the real estate market.

• All-cash offers made up 27% of July sales, up from 26% the previous year, and significantly higher than historical norms.
• This trend suggests that investors and buyers with substantial financial resources are still actively participating in the market, contributing to competition for available properties.

Outlook for the Housing Market

The recent dip in mortgage rates and the increase in housing supply have created a more favorable environment for homebuyers.

• While the market remains sluggish, the recent developments suggest that the housing market may be transitioning toward a more balanced state.
• However, the path forward remains uncertain, and it remains to be seen whether the current trends will continue to improve affordability and stimulate further growth in demand.