Sales of previously owned homes fell in July to their weakest level this year, as a shortage of homes for sale weighs more heavily 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 still 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 4.2 months of 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 steadily declining for most of the last three years.
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The peaking selling season, which spans the warm months prior to the start of the school year, was the most competitive in memory. Realtors saw a surge in demand, as the economy continues to strengthen and millennials are finally starting to buy homes. Homes have been spending on average 30 days on the market, down from 36 days a year ago.
But despite strong demand, home sales have essentially been flat throughout that critical period.
A lack of inventory limits demand 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 buying their first home 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.
The share of first-time buyers touched 33% in July, up from 32% the prior month and a year ago.
Mortgage rates have remained low, helping to drive more demand by keeping monthly payments lower. The rate for a 30-year mortgage averaged 3.86% this week, down from last week when it averaged 3.89%, mortgage company Freddie Mac said Thursday.
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.
Write to Laura Kusisto at laura.kusisto @wsj.com
(END) Dow Jones Newswires
August 24, 2017 10:50 ET (14:50 GMT)