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Home sales fell nearly 6% in July as the housing market slides into recession

According to a monthly report from the National Association of Realtors, sales of previously owned homes fell nearly 6% in July from June.

Sales fell to an annualized seasonally adjusted rate of 4.81 million units, the group added. It is the lowest sales rate since November 2015, except for a brief dip at the start of the Covid pandemic.

Sales were down about 20% compared to the same month a year ago.

“In terms of economic impact, we’re definitely in a housing recession because builders aren’t building,” said Lawrence Yun, chief economist for the Realtors. “However, are homeowners going into a recession? Absolutely not. Homeowners are still doing very well financially.”

July sales figures are based on closures, so contracts were likely signed in May and June. Mortgage News Daily reports that mortgage rates rose higher in June, with the average 30-year fixed loan rate crossing 6%. After that, it dropped back to the 5% high range. That rate started around 3% this year, so the hit to affordability in June was a hard one, especially when combined with rising inflation.

Home buyers are also still struggling with a tight supply. At the end of July there were 1.31 million homes for sale, the same as July 2021. At the current sales rate, that is an offer of 3.3 months.

While demand is declining due to weaker affordability, prices remain stubbornly high. The median price of a home sold in July was $403,800, up 10.8% year over year. However, price increases are now slowing down as this is the smallest annual increase since July 2020.

“The median home sales price continued to rise, but at a slower pace for the fifth consecutive month, shedding light on how declining buyer demand is returning the housing market to a more normal pace of activity,” said Danielle Hale, chief economist for real estate agent .com. “A look at active inventory trends shows that home listings in July 2022 were almost twice as likely to see a price cut compared to a year ago.”

Selling activity remains stronger at the top end of the market, although that too is rapidly decreasing. There is simply more supply available on the upper levels. Sales of homes priced between $100,000 and $250,000 were down 31% from the previous year, while sales of homes priced between $750,000 and $1 million were down 8%. Sales of homes over $1 million were down 13% from a year ago.

In July, the first buyers represented only 29% of buyers. Historically, they usually represent about 40% of sales, but they clearly struggle the most with affordability. High rents also make it harder for them to save for a down payment.

Even if sales slow down, this is still a fast moving market. A typical house in July went under contract in just 14 days, equivalent to the fastest ever recorded in June. A year ago it was 17 days. Yun called that “unusual.”

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