The parched landscape of the US housing market echoed in stark numbers last month, as home sales hit a low unseen in 14 years due to a severe shortage in inventory.
According to the National Association of Realtors, June saw existing home sales take a tumble of 3.3% to a seasonally adjusted 4.16 million homes. This figure represents a significant 19% drop from the 5.13 million home sales reported in June of last year, placing us back in a 2009-esque scenario in terms of sales numbers.
What’s driving this drastic drop? The answer lies in the sparse inventory of homes available for purchase. High mortgage rates have been the equivalent of a ‘Do Not Disturb’ sign for potential homeowners, making them think twice before listing their properties for sale. The supply of homes available remained largely stagnant in June, standing at 1.08 million units, but this figure is still a worrying 14% lower than the available supply recorded a year ago.
The bottom line: The US now faces a mere 3.1 months’ worth of unsold housing inventory, according to the National Association of Realtors.
“There are simply not enough homes for sale,” asserts Lawrence Yun, NAR’s chief economist. “The market can easily absorb a doubling of inventory.”
An additional effect of this sparse inventory is the inflation of home prices, as demand continues to outpace supply. This imbalance persists despite buyers grappling with affordability issues triggered by ascending mortgage rates. The average price for an existing home rose to $410,200 in June, just a smidgen away from the record high of $413,800 seen last year.
Yun further highlights, “Limited supply is still leading to multiple-offer situations, with one-third of homes getting sold above the list price in the latest month.”
Experts suggest that the key to improving affordability conditions lies in lowering mortgage rates. This move could stimulate an increase in inventory, resulting in eased home prices. However, the consensus among the experts is that this change is unlikely in the near future. They predict the average rate on a 30-year-fixed mortgage to hover around 6%-6.5% by the year’s end. To kickstart housing activity again, rates would need to tumble back down to around 5%, a prospect that appears distant at present.