Low housing inventory held back sakes in July, causing the first annual decrease in home sales since November 2015, according to the National Association of Realtors.
The West is still standing firm, however, and was the only region to still see a monthly increase in closings in July.
“Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month,” said NAR Chief Economist Lawrence Yun.
“Realtors are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows,” Yun said.
Total existing home sales, completed transactions that include single-family homes, townhomes and co-ops, fell 3.2% in July to a seasonally adjusted annual rate of 5.39 million. This is down from June’s 5.57 million.
In fact, for the second time in the past 21 months, sales are below 1.6% than a year ago.
“Furthermore, with new condo construction barely budging and currently making up only a small sliver of multi-family construction, sales suffered last month as condo buyers faced even stiffer supply constraints than those looking to purchase a single-family home,” Yun said.
That being said, home prices are still rising. The media existing-home price for all housing types in July increased 5.3% to $244,100, up from last year’s $231,800. This marks the 53rd consecutive month of annual increases.
Home prices across the U.S. increased in the second quarter, but the pace is slowing, and homes are slowly starting to become more affordable, according to the Federal Housing Finance Agency.
“Comparing yesterday’s stellar new home sales numbers with today’s existing home sales tells an important tale of two housing markets,” said Trulia Chief Economist Ralph McLaughlin. “Homebuilders continue to thrive on healthy demand while homebuyers remain stifled by anemic inventory.”
According to the latest estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, new home sales in July were at a seasonally adjusted annual rate of 654,000, which is up 31.3% from July 2015.
“The reality of low inventory has finally sunk in to the existing home sales market, which was climbing steadily against almost all expectations for the past four months before today's speed bump,” Zillow Chief Economist Svenja Gudell said. “But it's very difficult to sustain growing sales volumes when there simply aren't many homes for sale.”
“What's more, those homes that are for sale are increasingly unaffordable for first-time and entry-level home buyers,” Gudell said.
Housing inventory, while still struggling, inched up 0.9% from last month to 2.13 million existing homes available for sale, but it is still down 5.8% from last year.
This marks the 14th straight month of annual declines in inventory. Unsold inventory rests at 4.7 months’ supply, up from 4.5 months in June.
“Although home sales are still expected to finish the year at their strongest pace since the downturn, thanks to a very strong spring, the housing market is undershooting its full potential because of inadequate existing inventory combined with new home construction failing to catch up with underlying demand,” Yun said.
“As a result, sales in all regions are now flat or below a year ago and price growth isn’t slowing to a healthier and sustainable pace,” he said.
The share of first-time buyers came in at 32% in July, which is below last month’s 33% but up from 28% last year. First-time buyers represented 30% of sales in all of 2015.
NAR President Tom Salomone, broker-owner of Real Estate II Inc. pointed out that low inventory wasn’t the only concern.
“Appraisal-related contract issues have notably risen over the past year and were the root cause of over a quarter of contract delays in the past three months,” Salomone said. “This is likely a combination of sharply growing home prices in some areas, the uptick in home sales this year and the strong refinance market overworking the already reduced number of practicing appraisers.”
“Realtors are carefully monitoring this trend, and some have already indicated they’re extending closing dates on contracts to allow extra time to accommodate the possibility of appraisal-related delays,” he said.