A pending sale sign in front of a home in Miami.
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Signed contracts to purchase previously owned homes fell 1.8% in July from June, according to the National Association of Realtors.

Sky-high home prices have caused affordability to drop dramatically in the last several months. The median price of an existing home was up 18% in July, according to the Realtors. Much of that was due to the fact that there was far more activity on the higher end of the market, which skewed that median higher.

Pending sales are a forward-looking indicator of sales that close in one to two months.

“The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,” Realtors chief economist Lawrence Yun said in a release. “That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months.”

Mortgage rates fell sharply during July, with the average on the popular 30-year fixed starting the month at 3.18% and ending at 2.84%, according to Mortgage News Daily. That drop gave buyers more purchasing power, which likely helped those on the edge of affording today’s high home prices. The lower rates, however, were not enough to really juice the market.

Pending sales were down 8.5% compared with July last year. That annual comparison, though, is an unusual one, because sales spiked so dramatically last summer after the initial shutdown due to the pandemic.

Regionally, the Realtors’ pending sales index fell 6.6% in Northeast month to month and was down 16.9% year over year. In the Midwest it dropped 3.3% for the month and 8.5% from July 2020.

In the South, sales fell 0.9% for the month and were down 6.7% annually. In the West, sales rose 1.9% monthly and were down 5.7% annually.

“Homes listed for sale are still garnering great interest, but the multiple, frenzied offers — sometimes double-digit bids on one property — have dissipated in most regions,” Yun said.

Total housing inventory at the end of July was 1.32 million units, up 7.3% from June’s supply and down 12% from one year earlier (1.5 million). There was a 2.6-month supply of unsold inventory at the July sales pace

Closed sales of existing homes in July, which represent contracts signed in May and June, rose for the second straight month.

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A home, available for sale, is shown on August 12, 2021 in Houston, Texas.
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Sales of existing homes in July rose 2% from June to a seasonally adjusted, annualized rate of 5.99 million units, according to the National Association of Realtors.

These sales figures are based on closings, so they reflect contracts signed in May and June. Sales were 1.5% higher than July 2020. That is the second straight month of gains after a pullback in the spring.

Sales are likely improving due to rising supply. The inventory of homes at the end of July stood at 1.32 million, down 12% from a year ago, but that is a smaller annual decline than in recent months. At the current sales pace, that represents a 2.6-month supply. A six-month supply is considered a balanced market between buyers and sellers.

Despite the slight increase in supply, demand continued to outpace it, pushing prices to another all-time high.

The median price of an existing home sold in July was $359,900. That is a 17.8% increase compared with July 2020. Some of that price rise is skewed by the types of homes currently selling, and the market is much more active on the higher end. Annual price gains were larger last month, but given the huge spike in the market last summer, comparisons are now going to be smaller.

“The housing sector appears to be settling down,” said Lawrence Yun, chief economist for the Realtors. “The market is less intensely heated as before.”

It may be cooling, but it still appears to be competitive. Homes are spending, on average, just 17 days on the market. First-time buyers represented just 30% of the market, whereas they are usually around 40% historically. Nearly a quarter of all buyers are using all cash, also a higher share than normal.

The latest read on sales of newly built homes from June showed a sharp decline both monthly and annually, according to the U.S. Census. That data set is based on signed contracts, so it is looking at roughly the same activity as the July data on existing homes. Newly built homes come at a price premium to similar-sized existing homes, and builders say they are now seeing even more buyers unable to afford what they would like.

Mortgage rates didn’t move much throughout May and June, when the bulk of these deals were made, but they did fall more sharply in July. That, in addition to increasing supply, could help boost sales at least slightly in the coming months. Mortgage applications to purchase a home, however, continue to run at a far slower pace that a year ago, according to the Mortgage Bankers Association.

“Continued economic recovery is key to maintaining sales momentum, and anything that disrupts progress, such as rising Covid cases, could knock home sales off course,” said Danielle Hale, chief economist at Realtor.com. “Still, with listing price growth beginning to recalibrate in response to shifting supply and demand dynamics, we should see a steady pace of home sales over the next few months, especially if mortgage rates remain low.” 

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