Home sales in the U.S. increased 0.7% month-over-month in July to 387,374 – representing the most significant bump since the beginning of the year, according to the latest data by Redfin.
However, home sales have yet to reach pre-pandemic levels and still sit at 5.4% above the low point from March 2022 of 367,000 units – the lowest levels since the onset of the pandemic.
On an annual basis, home sales dropped 15.7% in July, marking the smallest annual decline since last summer. Nonetheless, homebuyer demand remains strained by high home prices and rising interest rates.
“Home sales hit a bottom in 2022 and haven’t meaningfully budged since,” Redfin Chief Economist Daryl Fairweather said in a statement. “Fading recession fears and the prospect of further home price increases have brought some house hunters off the sidelines, but for the most part, buyers remain hesitant to jump into the market because their buying power is so much lower than it was a year ago.”
In fact, the median annual home sale price increased 1.7% in July to $421,872, according to Redfin’s data. That translates to 2.5% below the record high of $432,476 set in May 2022.
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Low inventory is fueling a fiery housing market
High home prices have been partly driven by a severe lack of available homes for sale that’s pushing determined homebuyers into a roughly competitive housing market.
The total number of homes for sale dropped 3.9% month-over-month in July to its lowest level on record, according to Redfin’s analysis.
“It’s a seller’s market, but only because there’s so little inventory,” Salt Lake City Redfin Premier real estate agent Mitch Price said in a statement. “Buyers are getting hammered by high interest rates, so they’re not just jumping on whatever is available like they were before. They don’t want to overpay, so they’re waiting for the right home. As a seller, if you overprice your home, that’s your doomsday ticket.”
In addition, homebuyers have had to deal with rising mortgage rates.
The average 30-year-fixed mortgage rate stood at 6.84% in July, up from 6.71% in May and 5.41% a year earlier, Redfin said. In addition, mortgage rates hit their highest level since 2001 when the average 30-year fixed rate mortgage rate climbed to 7.23% for the week ending August 17, according to Freddie Mac data. And some experts expect these rates to continue an upward trend.
“Indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term,” Freddie Mac’s Chief Economist Sam Khater said in a statement. “As rates remain high and supply of unsold homes woefully low, incoming data shows that existing homes sales continue to fall.
“However, there are slightly more new homes available, and sales of these new homes continue to rise, helping provide modest relief to the unyielding housing inventory predicament,” Khater continued.
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Homebuyers lose more than $71,000 in purchasing power
Unusually high mortgage rates mean today’s homebuyers are facing severe affordability issues as opposed to their counterparts who closed a year earlier, according to a separate analysis by Redfin.
For example, a homebuyer on a $3,000 monthly budget who bought a $429,000 home with a 7.4% mortgage rate – roughly the daily average on August 23 based on Redfin’s data – has lost $71,000 in purchasing power since August 2022. That’s because they could have purchased a $500,000 home with an average rate of about 5.5% back then.
Another way to examine the housing market’s potential effect on a homebuyer’s budget is to examine monthly mortgage payments. The monthly mortgage payment on a $380,000 home – the price of a typical U.S. home according to Redfin data – is roughly $2,700 with a 7.36% mortgage rate. But as Redfin points out, the monthly payment would drop by $400 to about $2,300 with the previous year’s average mortgage rate of 5.5%.
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