High housing prices and high interest rates continue to suppress the property market. Existing home sales in the US fell to a three-month low in July

The Zhitong Finance App learned that the US real estate market continues to be under pressure. Affected by high housing prices and rising mortgage interest rates, existing home sales in the US fell to a three-month low in July. Potential buyers continued to wait and see, and the real estate market has not escaped the sluggish situation of recent years.

According to data released by the National Association of Realtors (NAR) on Tuesday, the equivalent annual rate of existing home sales in July fell 1.7% month-on-month to 4.06 million units, in line with the median expectations of the economists surveyed.

Since the end of 2022, the equivalent annual rate of existing home sales in the US has basically hovered around 4 million units, and continued recovery has been slow. Although the increase in residents' income has improved housing affordability to a certain extent, mortgage interest rates have recently risen again. In addition, housing prices are still at historically high levels, continuing to limit demand for home purchases.

Since this year, the cost of housing finance in the US has risen again. Interest rates on 30-year mortgages have continued to rise since the outbreak of the war in Iran at the end of February. Recently, it reached 6.81%, a one-year high.

NAR chief economist Lawrence Yun said that even though mortgage interest rates have continued to rise in the past few months, US home sales have been “quite stable.” However, he also pointed out that if the average mortgage interest rate can return to around 6%, the US real estate market will definitely become more active.

The impact of high interest rates on buyers is particularly obvious, because housing loans have a long term, and even if mortgage interest rates rise by only a few dozen basis points, they may significantly increase the monthly repayment burden on buyers.

This also means that in the absence of a significant drop in housing prices, the resurgence in mortgage interest rates has further weakened the actual purchasing power of households, leaving many potential buyers to remain outside the market.

In contrast to the cooling of sales, the price of existing homes in the US has continued to rise.

According to the data, the median sales price of existing homes in the US rose 2% year on year to US$434,400 in July, the highest level in July and continued the year-on-year upward trend that began in the summer of 2023.

Previously released data also showed that the median housing sales price in the US rose 1.5% year on year in the second quarter of this year, indicating that despite high interest rates continuing to suppress trading activity, housing prices across the country have not declined significantly.

Inventories continue to fall below pre-pandemic levels, which is one reason housing prices remain resilient. The limited supply of housing makes it difficult for the market to generate enough pressure to drive a marked decline in housing prices across the country, even when demand is weak.

According to NAR data, the supply of existing homes for sale in the US in July was 1.54 million units, down 0.6% year on year.

Insufficient inventory, high housing prices, and high interest rates together form the main contradiction in the current US real estate market. On the one hand, potential buyers are limited by financing costs; on the other hand, limited supply also supports housing prices, making it difficult for buyers to obtain obvious relief from burdens through falling housing prices.

First-time homebuyers have been particularly affected. First-time buyers in July accounted for 29% of all existing home sales, down from 33% in June. Since first-time homebuyers are generally more dependent on mortgages and have relatively limited funds available for down payments, they are more sensitive to changes in interest rates and housing prices.

However, compared with last year, the affordability of housing in the US is still showing some signs of improvement.

Mark Fleming, chief economist at First American Financial, pointed out that with overall household income growing faster than housing prices, the affordability of housing in the US has improved compared to a year ago. However, the recent resurgence in mortgage interest rates has eroded some of the improvements.

According to the housing affordability index released by NAR on Tuesday, the index rose 5.1% in July compared to the same period last year. This indicator measures whether a typical household's income is sufficient to secure the mortgage needed to buy a median-priced home.

This shows that judging from the relative changes in income and housing prices, the situation of American homebuyers has improved compared to last year, but high financing costs are still a key factor hindering the release of demand.

From a regional perspective, there was a clear divergence in the sales performance of existing homes in the US in July.

As the largest housing sales region in the US, existing home sales in the South fell 3.1% to a four-month low; the Midwest fell 2%; sales in the West remained the same as last month; and the Northeast achieved growth.

Overall, the US real estate market is still at an impasse where high housing prices, high financing costs, and limited inventory interact. Although income growth provided some support for housing affordability, interest rates on 30-year mortgages rose to a one-year high of 6.81%, once again increasing the cost of buying a home.

With mortgage interest rates unable to decline significantly and housing prices lacking drastic adjustments, it may still be difficult for existing home sales in the US to clearly break through the low range equivalent to an annual rate of about 4 million units since the end of 2022.