The U.S. housing market experienced a significant downturn in June, with home sales falling to their lowest level since December. This decline is attributed to rising mortgage rates and record-high home prices, which have deterred potential buyers and slowed the market's momentum.
In June, the sales of previously occupied U.S. homes fell by 5.4% from May, reaching a seasonally adjusted annual rate of 3.89 million. This marks the fourth consecutive month of declines and is below the 3.99 million annual pace that economists had anticipated. Despite the decrease in sales, home prices continued to climb, with the national median sales price rising by 4.1% from a year earlier to $426,900, an all-time high.
The supply of homes on the market increased to its highest level since May 2020, with 1.32 million unsold homes at the end of June. This represents a 4.1-month supply at the current sales pace, which is traditionally considered a balanced market between buyers and sellers. However, the recent increase in inventory suggests that the housing market may be tipping in favor of homebuyers.
Several factors have contributed to the ongoing slump in the housing market:
Recent signs of cooling inflation have raised expectations that the Federal Reserve may cut its benchmark rate in September. If bond yields decline in anticipation of a Fed rate cut, mortgage rates could ease, potentially spurring more homeowners to sell and more buyers to enter the market. However, most economists expect the average rate on a 30-year home loan to remain above 6% this year.
First-time homebuyers continue to face significant challenges in entering the housing market. They accounted for 29% of all homes sold in June, down from 31% in May but up from 27% in June last year. Historically, first-time buyers have accounted for 40% of sales. The high home prices and elevated mortgage rates have made it difficult for these buyers to afford a home.
Homebuyers who can afford to pay all cash for a home accounted for 28% of sales in June, up from 26% in June last year. Additionally, about 16% of homes sold last month were bought by individual investors or homeowners looking to buy a second home, down from 18% a year earlier.
The U.S. housing market remains in a state of flux, with rising mortgage rates and high home prices continuing to pose challenges for buyers and sellers alike. The coming months will be crucial in determining whether the market will stabilize or continue its downward trend.