Two Things The Latest Home Sales Numbers Say About The Real Estate Market

Each month, the National Association of Realtors publishes existing home sales data. This data is a month behind and tallies up sales, so it doesn’t tell us where the market is right now, but we can use it to see where the trends are going. It hasn’t been a great year for real estate.

At the end of last year, the National Association of Realtors forecast that sales would rise by 13.5%. That estimate, predicated on falling mortgage rates, appears to have been optimistic. The July existing home sales report showed that sales were down 2.5% year over year; however, they were up 1.3% from the previous month, ending a trend of lower sales.

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Will 6% Be Enough To Move The Market? 

Mortgages shot up as high as 8% at the end of 2023. Lawrence Yun, Chief Economist of the National Association of Realtors, has called 6% for a 30-year-fixed rate mortgage the goal for a new normal. We are still around half a percentage point away from that target. The latest Freddie Mac Primary Mortgage Market Survey came in at 6.46% for a 30-year-fixed. However, after a few positive weeks, recent data from the Mortgage Bankers Association showed that mortgage applications dropped over 10% week over week. That could be temporary either due to seasonality or it could suggest that buyers are waiting on the Fed's next move in September with the belief that rates will go lower.

Lower rates are a positive sign for buyers overall, but even at a 6% rate, homes are still far more expensive than they were a year ago. The July median existing-home sales price from the National Association of Realtors data was $422,600. That was an over 1% drop from last month but up 4.2% year over year. Even if mortgage rates fall, if prices keep rising, buyers will still face the same constraints. Logan Mohtashami, lead analyst at Housing Wire, told CNBC that the current downturn in mortgage rates won’t necessarily move the needle for existing homes. In fact, he believes it will take 4% to 6% to create a significant sales shift. “I believe it will have more of an impact on new home sales because the builders can still pay down rates,” he said. “I haven’t seen anything to have sustained growth in the existing home sales market until we get rates below 6% and having it stay there." 

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Is It Still All About The Inventory? 

The difference between a buyer's and seller's markets comes down to inventory. Higher inventory, in theory, will bring down prices. Inventory is higher, up 0.8% in July to a four-month supply, moving closer to that six-month supply needed for a balanced market. More homes for sale will bring prices down over time, but there is often a lag between what a buyer thinks a house should cost and what it sells for. Therefore, one thing to keep an eye on is price cuts. Zillow's July data showed that 26% of homes on the site had a price chop. That may be a sign things are evening out. 

Low inventory still gives homebuilders a bit of an advantage. On the second quarter earnings call for luxury homebuilder Toll Brothers, CEO Doug Yearley laid out the advantage he sees for his company, and the lock-in effect keeps the majority of homeowners with a sub-5% mortgage in their current homes. "Even as interest rates move lower, we believe the supply of homes will remain challenged due to nearly 15 years of underproduction. Lower rates alone will not fully address the chronic undersupply of housing," said Yearley. 

National numbers don't tell the story of individual markets. However, they do give a window into an existing home sales market that still needs something to shift to move beyond the existing situation. Lawrence Yun termed the current market ‘sluggish,' a good descriptor for the wait-and-see state of things. 

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