U.S. existing-home sales drop a fifth month to a two-year low

Sales of previously owned U.S. homes fell in June to a two-year low as a surge in borrowing costs continues to erode affordability.

Contract closings fell 5.4% from May to an annualized 5.12 million, figures from the National Association of Realtors showed Wednesday. The median estimate called for 5.35 million in a Bloomberg survey of economists.

The latest decline in sales marks the fifth straight — the worst streak since 2013 — and it’s likely to deepen further. The Federal Reserve is aggressively increasing interest rates to combat inflation, a pivot that’s chilled the broader housing market. High mortgage rates have curbed buyer demand and pushed some buyers to back out of deals. And as inventory starts to grow, some sellers are now cutting prices.

Homebuilder sentiment has also tumbled, and both groundbreakings and building permits for single-family homes dropped in June to two-year lows.

“Falling housing affordability continues to take a toll on potential home buyers,” Lawrence Yun, NAR’s chief economist, said in a statement. “Both mortgage rates and home prices have risen too sharply in a short span of time.”

The number of homes for sale rose for the first time in three years on an annual basis to 1.26 million, the highest since September. At the current sales pace it would take three months to sell all the homes on the market, marking the fifth straight rise in months’ supply. Realtors see anything below five months of supply as a sign of a tight market.

The median selling price rose 13.4% from a year earlier to a fresh record of $416,000. First-time buyers accounted for 30% of US sales last month, up from 27% in May.

“Homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers,” Yun said.

Cash sales represented 25% of all transactions in June, up from 23% in the same month last year. Investors, who typically buy in cash and are therefore less sensitive to mortgage rates, made up 16% of the market.

Separate data Wednesday added to evidence of sluggish demand. The Mortgage Bankers Association’s index of home purchase applications fell for a third week to a more than two-year low. Looking beyond the pandemic-related slump, the gauge hasn’t been this weak since 2016. The group’s measure of all mortgage applications, including refinancing, now stands at the lowest level since February 2000.

Digging Deeper

• Sales dropped in three of the four regions in June, while they were unchanged in the Northeast
• Properties remained on the market for an average of 14 days last month, the swiftest in data back to 2011. “People are trying to take advantage of their interest-rate lock,” Yun said
• Some 88% of homes sold in June were on the market for less than a month
• Existing condominium and co-op sales decreased 9.8% from a month earlier; sales of single-family homes dropped 4.8% in June
• Existing-home sales account for about 90% of US housing and are calculated when a contract closes. New-home sales, which make up the remainder, are based on contract signings, and will be released next week