Home Sales Grew, But High Prices Affect Demand

Existing home sales increased 2.0 percent in July to a seasonally adjusted rate of 5.59 million, according to the National Association of Realtors (NAR), up from a downwardly revised 5.48 million in June. Existing home sales have increased year-over year for the last ten months, and are now 10.3 percent higher than a year ago.

Median existing home prices increased 5.6 percent to $234,000, the forty-first consecutive month of year-over-year price increases. Despite strong sales, rising home prices may be starting to have a negative effect on demand. “Realtors in some markets reported slower foot traffic in July in part because of low inventory and concerns about the continued rise in home prices without commensurate income gains,” noted NAR Chief Economist Lawrence Yun. “Rising rents and flat wage growth make it difficult for many to save for a down payment, and the dearth of supply in affordable price ranges is limiting their options.”

Although wage growth has shown some signs of improvement over the past year according to the Atlanta Fed’s Wage Growth Tracker, growth in wages are well below pre-recession levels, and are not keeping pace with the growth in home prices, which was 4.4 percent on an annual basis in May, according to the Case Schiller Index. This likely had an effect on the share of first time home buyers, which fell for the second consecutive month, dropping 2 points to 28 percent. A year ago, the share of first time buyers was 29 percent.

Total housing inventory declined 0.4 percent to 2.24 million existing homes available for sale, down 4.7 percent from this time a year ago. There is currently a 4.8-month supply of existing homes available for sale, down from a 4.9-month supply in June.

Existing home sales increased in the South and West by 4.1 percent and 3.2 percent respectively, but declined 2.8 percent in the Northeast. Existing home sales were unchanged in the Midwest. Each region also saw year over year gains in median home prices.

Distressed sales – foreclosures and short sales – fell 1 point to 7 percent, the lowest share since 2008. Individual investors purchased 13 percent of homes in July, up from 12 percent in June.

Read the NAR report.