US home sales rose in July as mortgage rates eased a bit and home prices grew more slowly

U.S. existing home sales rose 2% month-over-month in July to a seasonally adjusted annual rate of 4.01 million units, exceeding economist expectations, driven by a modest easing in mortgage rates, slowing home price growth, and increased inventory. The national median sales price saw its smallest annual increase since June 2023, up just 0.2% year-over-year to $422,400, indicating a slight improvement in affordability and a shifting market dynamic where sellers face longer days on market and offer more incentives, despite the overall market remaining below pre-pandemic inventory levels.

Analysis

U.S. existing home sales in July showed signs of stabilization, rising 2.0% month-over-month to a seasonally adjusted annual rate of 4.01 million units, surpassing economist expectations. This uptick was underpinned by a significant deceleration in home price growth, with the national median price rising by a marginal 0.2% year-over-year to $422,400, the smallest annual increase since June 2023. The supply side of the market is also loosening, as inventory increased 15.7% from the prior year to 1.55 million units, the highest level since May 2020. Despite these improvements, significant headwinds persist. The market remains tight with only a 4.6-month supply, below the 5-to-6 month level considered balanced, and affordability continues to be a major constraint. This is evidenced by the declining share of first-time homebuyers, which fell to 28% of sales, well below the historical average of 40%, indicating that the recovery is not broad-based. The cooling demand is further reflected in longer selling times, with properties averaging 28 days on the market, and an increase in seller concessions, with 20.6% of listed homes having their prices reduced.

Key Decisions for Investors

• Investors should monitor homebuilder stocks for potential headwinds, as the 15.7% year-over-year increase in existing home inventory and widespread seller price reductions create more competition for new construction.
• The market's structural weakness, highlighted by the decline of first-time buyers to just 28% of sales, suggests that any housing rebound is fragile and warrants caution regarding the sustainability of recent positive data.
• Given the rebalancing dynamics, where supply is rising but still tight and price growth is slowing but not negative, a neutral stance on housing-related assets is prudent, with mortgage rate fluctuations being the key catalyst to watch for the market's next directional move.