Americans retreated from buying homes in July as sales sank to their lowest level of the year.
The National Association of Realtors said August 24 that sales of existing homes fell 1.3 percent to a seasonally adjusted annual rate of 5.44 million. Despite the second straight monthly drop, sales are 2.1 percent higher than a year ago. But purchases are starting to slow as fewer properties are coming onto the market.
The real estate market is grappling with the consequences of a persistent shortage of homes for sale despite strong demand from would-be buyers. The decline in listings has driven up prices and made many homes unaffordable: Prices are rising faster than the wages of potential buyers despite a solid job market.
“For more than two years now, inventory has been has been contracting, pushing the housing market into an inventory crisis,” said Svenja Gudell, chief economist at the real estate firm Zillow.
The number of existing homes listed for sale has plunged 9 percent over the past 12 months to 1.92 million. In the meantime, the median sales price has risen 6.2 percent to $258,300 — more than double the pace of growth in average hourly earnings.
The lack of homes on the market is also causing properties to sell more quickly. The average number of days on the market was 30 in July, compared with 36 a year ago.
In July, sales plummeted 14.5 percent in the Northeast and fell 5.3 percent in the Midwest. But buying picked up 2.2 percent in the South and 5 percent in the West.
Homeowners are increasingly staying put rather than moving. The average tenure of someone selling their home in July was 8.28 years, according to ATTOM Data Solutions. The real estate data company says that average period of ownership was the highest ever recorded for figures dating to 2000.
California and New England are where homeowners have remained the longest before selling. The average tenure was more than 10 years in Boston, Los Angeles, San Francisco, Seattle and Providence, Rhode Island. Many of these markets are pricy or have experienced major jumps in home values in recent years.
Daren Blomquist, senior vice president at ATTOM Data Solutions, said there are two major reasons for people staying in homes longer:
First, they’re choosing to build up their equity by staying in place and repaying their mortgages, reflecting a lesson learned during the 2007 housing bust when people without sufficient equity lost their homes to foreclosure.
Second, the supply shortage has made it harder for buyers to either move up or downsize to another home.
Some financial pressures for would-be homebuyers have been eased as mortgage rates have dropped to their lowest levels since the presidential election.
The average 30-year fixed rate mortgage charged 3.86 percent this week, according to mortgage buyer Freddie Mac. Average rates began to climb after President Donald Trump won the election. But they’ve declined in recent months, in line with Treasury bond yields, as uncertainty has surrounded his tax and infrastructure policies.