Soaring prices and dwindling supplies trigger steep falls in residential property sales in July.
Home sales sunk in July to their lowest point this year as an inventory shortage continued to squeeze the U.S. housing market.
Sales of new and existing homes were down at the start of the third quarter, according to data from Washington’s Commerce Department and the National Association of Realtors (NAR), a trade association representing 1.2 million members.
New home sales plunged 9.4% to a seasonally adjusted annual rate of 571,000 units in July, the lowest since December. The percentage drop was also the largest since August 2016 and confounded expectations of a 0.3% gain. New-home stock accounts for less than 10% of residential property sales.
Existing home sales fell 1.3% in July to a seasonally adjusted annual rate of 5.4 million, NAR data showed. That was also the lowest level of the year.
Despite the declines, buyer interest remains elevated across much of the country as more people look to snatch up what’s left of a dwindling supply of available homes. High demand and not enough houses for sale have placed pressure on affordability, leading to a sharp decline in overall sales, according to NAR chief economist Lawrence Yun.
The NAR said that 51% of homes sold in July were on the market for less than a month, a sign that buyers are moving quickly to snatch up a limited number of available properties.
Home sales have rebounded roughly 40% from their lowest point following the subprime mortgage prices, but have been flat for the past year. Housing inventories have declined for 26 consecutive months when measured on a year-over-year basis, according to PNC Financial Services Group senior vice president Gus Faucher.
Recent construction activity suggests that the supply/demand imbalance for housing will likely persist into the future. Housing starts declined in July for the fifth time in six months. In July, groundbreaking fell 4.8% to a seasonally adjusted annual rate of 1.16 million units.
Single-family starts, which account for the largest share of the real estate market, slipped 0.5% to a rate of 856,000 units. This segment of the market has slowed since hitting more than nine-year highs in February.
The same report also found that building permits, which are a proxy for future construction projects, declined 4.1% to 1.22 million units.
The rush to buy property will likely accelerate in coming months as more Americans look to take advantage of favorable mortgage rates. Freddie Mac recently reported that 30-year mortgage rates reached yearly lows in the week ended August 24. The 30-year fixed-rate mortgage averaged 3.86%, down three basis points from the previous week. The 15-year fixed-rate mortgage averaged 3.17%.
The prospect of higher sales over the next six months boosted homebuilder confidence in August, according to the National Association of Home Builders (NAHB). The NAHB Housing Market Index gained four points in August to reach 68, on a scale where any number over 50 implies that more builders view conditions as good than poor.