High housing prices and high interest rates continue to suppress the real estate market, with U.S. existing home sales in July falling to a three-month low.

The U.S. real estate market continues to face pressure. Influenced by persistently high home prices and rising mortgage rates, existing home sales in the U.S. dropped to a three-month low in July, as potential buyers remain on the sidelines, and the real estate market has yet to escape its prolonged slump in recent years. Data released by the National Association of Realtors (NAR) on Tuesday showed that existing home sales in July, seasonally adjusted to an annual rate, fell 1.7% month-over-month to 4.06 million units, aligning with the median forecast of economists surveyed. Since the end of 2022, annualized existing home sales in the U.S. have largely hovered around 4 million units, showing no signs of sustained recovery. Although rising household income has somewhat improved housing affordability, recent increases in mortgage rates and the continued historical highs in home prices further constrain buyer demand. This year, the cost of housing finance in the U.S. has risen again. Since the outbreak of the Iran conflict at the end of February, the 30-year fixed mortgage rate has continued to climb, recently reaching 6.81%, the highest level in a year. NAR Chief Economist Lawrence Yun noted that even with rising mortgage rates over the past few months, U.S. home sales have remained fairly stable. However, he also pointed out that if the average mortgage rate could return to around 6%, the U.S. real estate market would undoubtedly see a noticeable revival. The impact of high rates on homebuyers is particularly evident, as the long term of housing loans means that even a rise in mortgage rates by a few tens of basis points can significantly increase the monthly repayment burden for buyers. This also means that, in the absence of a substantial decline in home prices, the resurgence of mortgage rates further weakens household purchasing power, keeping many potential buyers out of the market. In contrast to cooling sales, U.S. home prices continue to rise. Data shows that the median sale price of existing homes in July rose 2% year-over-year to $434,100, marking the highest level for July on record and extending the year-over-year upward trend that began in the summer of 2023. Earlier reports also indicated that the median sale price of homes in the U.S. rose 1.5% year-over-year in the second quarter of this year, suggesting that while high rates have suppressed transaction activity, there has not been a noticeable nationwide decline in home prices. Continued low inventory levels compared to pre-pandemic times are one reason for the resilience of home prices. Limited housing supply makes it difficult for the market to generate sufficient pressure to push down nationwide prices, even in the face of weak demand. NAR data indicates that the supply of homes for sale in July was 1.54 million units, a year-over-year decrease of 0.6%. The dual pressures of low inventory and high home prices and interest rates constitute the main contradictions in the current U.S. real estate market. On one hand, potential buyers are constrained by financing costs; on the other, limited supply supports home prices, making it challenging for buyers to gain significant relief from affordability through falling prices. First-time homebuyers are especially affected. In July, first-time buyers accounted for 29% of all existing home sales, down from 33% in June. Since first-time buyers typically rely more on mortgages and have limited funds for down payments, they are more sensitive to changes in interest rates and home prices. However, compared to last year, there are signs of some improvement in housing affordability in the U.S. Mark Fleming, Chief Economist at First American Financial, noted that as overall household income growth has outpaced the increase in home prices, housing affordability has improved compared to a year ago. However, recent increases in mortgage rates have eroded some of these gains. NAR's housing affordability index released on Tuesday showed that in July, the index rose 5.1% compared to the same period last year. This index measures whether a typical household income is enough to qualify for the mortgage needed to purchase a home at the median price. This indicates that regarding the relative changes between income and home prices, U.S. homebuyers are in a better situation compared to last year, but high financing costs still impede the release of demand. Regionally, the performance of existing home sales in the U.S. in July showed significant differentiation. As the largest housing sales region in the U.S., sales in the South dropped 3.1%, hitting a four-month low; sales in the Midwest fell by 2%; sales in the West remained flat compared to the previous month; while the Northeast experienced growth. Overall, the U.S. real estate market remains locked in a stalemate characterized by high home prices, increased financing costs, and limited inventory. While income growth provides some support for housing affordability, the rise in the 30-year mortgage rate to a one-year high of 6.81% has once again increased the cost of home buying. In the absence of a significant decline in mortgage rates and a lack of substantial adjustments in home prices, existing home sales in the U.S. are likely to continue to struggle to break through the low range of around 4 million annualized units that has persisted since late 2022.