Despite major slowdown in housing market, prices to buy remain high

Sales of previously occupied homes slowed for the sixth consecutive month in July. High mortgage rates and surging inflation slowed sales. The National Association of Realtors said existing home sales fell 5.9% last month from June, and sales fell 20.2% from July last year. Sales have now fallen to the slowest pace since May 2020, near the start of the COVID-19 pandemic.

The last time there was a six-month losing streak for home sales was between August 2013 and January 2014. The Western part of the country is home to some of the nation’s most expensive housing markets. Sales in that region fell 30% last month from a year ago, according to the NAR.

Despite the seeming drop in demand, home prices have stayed high. The national median home was up nearly 11% in July compared to a year earlier. Slowing demand could help lower home prices, but it would depend on supply, which remains low. The median existing house price rose 10.8% from a year earlier to $403,800 in July. That was the smallest gain in two years, though prices typically retreat in July after surging in June.

Mortgage rates, a driving factor for the poor housing market, have soared. The 30-year fixed-rate mortgage is hovering around an average of 5.22%, up from 3.22% at the start of the year, according to data from mortgage finance agency Freddie Mac. The other driving force of inflation has shown no sign of slowing either.

Battling to bring inflation back to the U.S. central bank’s 2% target, the Fed has hiked interest rates by 225 basis points since March. Minutes of a recent policy meeting published on Wednesday showed Fed officials acknowledged that higher borrowing costs had cooled demand for housing and “anticipated that this slowdown in housing activity would continue.”

Credit reporting agency Fitch, ahead of the numbers released today, said the probability of a “severe downturn” in the U.S. housing market is on the rise. Fitch’s projections suggest that U.S. home prices could sink by 10% to 15% in the case of a major housing slump, alongside a roughly 30% decline or more in housing activity over the next few years.

Reuters contributed to this report.