Sales of previously owned homes fell in July to their weakest level of the year as a shortage of homes for sale weighed on the market.
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Existing home sales fell 1.3% to a seasonally adjusted annual rate of 5.44 million, the National Association of Realtors said Thursday. The sales pace is up 2.1% from July of last year.
"Nearly all Realtors across the country are reporting that the inventory shortage is limiting sales potential," said Lawrence Yun, chief economist at the National Association of Realtors.
At the current sales pace there was a 4.2 month supply of homes on the market, down from 4.8 months a year ago. There were 9% fewer homes on the market in July than there were a year earlier.
"One year ago, I thought it was a very tight condition, but the housing shortage has intensified," Mr. Yun said.
Inventory has been declining for most of the last three years.
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The peak selling season, which spans the warm months before the start of the school year, was the most competitive in memory. Realtors reported a surge in demand as the economy continued to strengthen and millennials showed interest in buying homes. Properties have been spending on average 30 days on the market, down from 36 days a year ago.
Mike McCann, a Realtor in Philadelphia, typically a fairly sleepy real-estate market, said buyers might make three or four offers and still keep losing out in bidding wars.
Mr. McCann said people are choosing to stay in their homes longer, so he tries to entice them to put their homes on the market through flyers and social media, even reaching out to owners and telling them he has a specific buyer interested in their home.
"The inventory is very, very, very low. It's crazy. We're all trying to find ways to get more property," he said.
Despite strong demand, home sales have essentially been flat throughout the critical spring and early summer period, which economists said is reason for caution. Home sales are a critical indicator of consumer confidence in the economy.
"This slide isn't enough to make us question the broader economic outlook. Not yet. But if you're the worrying type it's headed the wrong way certainly," said Chris Rupkey, chief financial economist at MUFG Union Bank.
A dearth of inventory pinches the market both because buyers get frustrated and give up if they can't find a home they like and because it pushes up prices beyond what many families can afford.
The median sales price in July hit $258,300 up 6.2% from a year earlier, NAR said. Wages during the same period increased by about 2%, helping to push purchasing a first home out of reach for more households.
Economists said that while most of the reason the market is performing poorly appears to be a lack of inventory, there also are signs consumers are pulling back because they are concerned about a price bubble.
"There is this sense that prices cannot get higher," said Nela Richardson, chief economist at Redfin.
Zachary Sensenbach, an agent with Redfin, said he can often show buyers all the properties that fit their criteria in just a weekend. Many are simply giving up.
"They'll write these offers and then once they realize what it takes to win on something they pump the brakes a little bit," he said. "They just get tired of losing."
News Corp, owner of The Wall Street Journal, operates Realtor.com under license from the National Association of Realtors.
Housing has shown weakness across all segments of the market in recent months. Purchases of newly built single-family homes, which represent a tiny slice of all U.S. home sales, decreased 9.4% to a seasonally adjusted annual rate of 571,000 in July, the Commerce Department said Wednesday.
U.S. housing starts declined for the fourth time in five months in July, the Commerce Department reported last week. Total housing starts decreased 4.8% from the previous month to a seasonally adjusted annual rate of 1.155 million.
"There's no doubt the tight inventory situation is weighing on things," said Aaron Terrazas, a senior economist at Zillow.
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(END) Dow Jones Newswires
August 24, 2017 15:11 ET (19:11 GMT)