Pre-Owned Home Sales in the US Hit Lowest Level of the Year

The US housing market experienced a significant decline in pre-owned home sales in July 2023, reaching the lowest level since the beginning of the year.

The US housing market experienced a significant decline in pre-owned home sales in July 2023, reaching the lowest level since the beginning of the year. This drop can be attributed to a combination of factors, including a shortage of inventory and rising mortgage interest rates. Let's delve into the details provided by the National Association of Realtors (NAR) and examine the implications of these trends.

Sales Decline and Inventory Shortage:

In July 2023, pre-owned home sales in the US fell by 2.2% to 4.07 million units, marking a six-month low. This decline can be attributed to a scarcity of available properties for sale. Limited inventory has been an ongoing challenge, with the number of pre-owned homes on the market decreasing by 14.6% compared to the same period last year. Although there was a slight increase of 3.7% in inventory from the previous month, it remains insufficient to meet demand.

Price Impact and Market Balance:

The limited supply of pre-owned homes has contributed to an upward pressure on prices, resulting in a 1.9% year-on-year increase, with the average price per unit reaching $406,700. Moreover, the low inventory levels have also affected the balance between supply and demand. At the current sales pace, it would take approximately 3.3 months to sell off the remaining inventory, slightly higher than the 3.2 months recorded during the same period last year. However, this figure still falls significantly below the ideal supply-demand balance of 4 to 7 months.

Rising Mortgage Interest Rates:

Another factor impacting pre-owned home sales is the recent increase in mortgage interest rates. Freddie Mac, a mortgage lender, reported that rates have reached their highest levels in decades. Specifically, the average interest rate on 30-year fixed loans rose by 7% in the most recent week. These higher rates have made borrowing more expensive, potentially deterring some potential buyers from entering the market.

Implications and Outlook:

The decline in pre-owned home sales and the persisting inventory shortage pose challenges for the US housing market. The limited supply and rising prices make it more difficult for potential buyers to find affordable homes, particularly first-time buyers. Additionally, the impact of rising mortgage interest rates adds further complexity to the market dynamics.

Looking ahead, addressing the inventory shortage will be crucial to stabilize the market and improve affordability. Increased construction activity and incentives for homeowners to sell could help alleviate the supply constraints. Furthermore, monitoring mortgage interest rates and their impact on buyer demand will be essential in understanding the future trajectory of the housing market.

The US housing market witnessed a decline in pre-owned home sales in July 2023, reaching the lowest level since the start of the year. A shortage of inventory and rising mortgage interest rates were the primary contributing factors. Addressing the supply shortage and monitoring market conditions will be key to fostering a more balanced and sustainable housing market in the future.