U.S. existing home sales slowed for the sixth consecutive month in July as rising mortgage rates, surging inflation and upticks in home prices continued to push prospective buyers out of the market.
Sales of previously owned homes tumbled 5.9% in July from the previous month to an annual rate of 4.81 million units, according to new data released Thursday by the National Association of Realtors. That is lower than what economists were expecting, according to Refinitiv. On an annual basis, home sales plunged 20.2% in July.
Sales have fallen to the slowest pace since May 2020, when the economy was still deep in the throes of the COVID-19 pandemic. The last time that home sales plunged for six straight months was between August 2013 and January 2014.
"We're witnessing a housing recession in terms of declining home sales and home building," NAR chief economist Lawrence Yun said. "However, it's not a recession in home prices."
There were about 1.31 million homes for sale at the end of July, according to the report, an increase of 4.8% from June and unchanged from last year. Despite more homes sitting on the market, homes still sold on average in just 14 days — matching a record pace from June. Before the pandemic, homes typically sat on the market for about a month before being sold.
At the current pace of sales, it would take roughly 3.3 months to exhaust the inventory of existing homes — up from 2.9 months in June and 2.6 months one year ago. Experts view a pace of six to seven months as a healthy level.
The interest rate-sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades. Policymakers already approved a 75-basis point rate increase in both June and July and have signaled that another mega-sized increase is on the table when they meet in September.
The average rate for a 30-year fixed rate mortgage fell slightly to 5.13% for the week ending Aug. 18, according to recent data from mortgage lender Freddie Mac. That is significantly higher than just one year ago, when rates stood at 2.86%.
"High borrowing costs, elevated home prices and accelerating rents make this economic environment extremely difficult for would-be first-time homebuyers," said Jeffrey Roach, chief economist for LPL Financial.
He added: "A slowdown in housing has real economic impacts across the economy. For the demographic without home equity or a fixed rate mortgage, inflationary pressures are acute and, unfortunately, rent prices are accelerating."