Housing Market Turmoil: Prices Hit an All-Time High, But Sales Drop

Home prices hit an all-time high, but sales go down simultaneously. This simply means houses are more expensive than ever, but fewer people are buying them. This situation creates a tricky housing market for everyone involved. Let dive deep into the reasons.

Housing Market Turmoil: Prices Hit an All-Time High, But Sales Drop

The Numbers Don't Lie: A Snapshot of Today's Housing Market

Let's start with the latest information from the National Association of REALTORS® (NAR) and Realtor.com. These experts keep a close watch on the housing market, and here's what their reports are telling us:

• Home Sales Are Slipping: In the latest NAR Existing-Home Sales Report, existing home sales decreased by 2.7% in June. We’re seeing fewer homes changing hands. According to Realtor.com, sales volume for existing homes is expected to fall 1.5% annually, to just 4 million transactions. That would mark the slowest year for existing-home sales since 1995!
• Prices Are Sky-High: Despite the drop in sales, the median existing-home price reached a record high of $435,300 in June, a 2% increase from last year. In some areas, the prices are even higher.
• Inventory Is Up (Slightly): There are more homes available for sale than there were a year ago. The total housing inventory in June was 1.53 million units, up 15.9% from June 2024. This gives buyers more options.
• Mortgage Rates Remain Elevated: Those seemingly ever-present high mortgage rates are definitely playing a huge role. Freddie Mac reported that the average 30-year fixed-rate mortgage was 6.75% as of July 17th.
• Homes Are Staying on the Market Longer: The median time a property stays on the market before being sold is now 27 days. This is up from 22 days last year, suggesting homes aren't selling as fast as they used to.

To present this in an easier to read manner, please refer this table.

Metric	Change	Details
Existing-Home Sales	Decrease 2.7%	Month-over-month; No change year-over-year
Median Home Price	Increase 2%	Record high of $435,300
Housing Inventory	Up 15.9%	1.53 million units
Mortgage Rate (30-Year)	6.75%	As of July 17
Days on Market	27 days	Up from 22 days last year; Shows homes are staying longer in the market before getting sold confirming the reduction in sale activity

The Million-Dollar Question: Why This Disconnect?

So, why are these two things – high prices and low sales – happening at the same time? It boils down to a few key factors:

1. High Mortgage Rates: These rates are the biggest buzzkill for potential buyers right now. When rates are high, it costs more to borrow money, making homes less affordable. A slight increase in the morgage rate will affect the affordability by a wide margin.
2. Affordability Crisis: Home prices have been climbing for years, outpacing wage growth. Even with slightly more inventory, many people simply can't afford to buy a home, especially with those high mortgage rates.
3. Inventory Issues: While inventory is up compared to last year, we are still in short supply. The construction of new homes isn't keeping up with the population increase. More homes need to be built to bring prices down and meet the demand.
4. Sellers Are Hesitant: Some potential sellers are choosing not to list their homes, possibly hoping that the market will improve. We call this the “lock-in effect,” where existing homeowners with low mortgage rates are reluctant to sell and give up those favorable rates.
5. Economic Uncertainty: People’s confidence has taken a bit of a hit with all the news about inflation, economic downturns, and job security. This situation makes people think twice before spending a fortune on a home.
6. Homeownership Rate Decline: Due to lack of affordability, and rising prices the homeownership rate is expected to decline to 65.2% this year.

Regional Differences: Where You Live Matters

Here’s the thing – the housing market isn’t the same everywhere. What’s happening in one part of the country might be totally different from what’s happening somewhere else. The NAR report breaks down the numbers by region:

• Northeast: Sales decreased and prices increased. This area remains a tighter market with steady buyer activity.
• Midwest: Sales decreased, but prices increased.
• South: Sales decreased, and prices saw a slight increase. The Southern region has seen the most substantial inventory gains.
• West: Sales increased slightly, but prices increased. The West is also seeing increased inventory, but affordability is still an issue.

The First-Time Homebuyer Struggle

For those trying to buy their first home, this market is brutal. The median home price is so high, and the down payment needed just keeps getting bigger. Add to that high mortgage rates, and it's easy to see why many first-timers are stuck renting or living with family longer. Remember first-time home buyers accounted for 30% of sales.

The Impact on Renters

Interestingly, while buying a home is getting pricier, the rental market is softening a bit. Asking rents are even expected to decline slightly this year. This could offer some relief for renters who are saving up for a down payment or waiting for the housing market to cool down. Its a small positive change that renters can hang on to.

My Take on What's Next: A Glimmer of Hope?

Okay, so here's where I share my own thoughts on all of this. I think the housing market is at a turning point. While prices are currently high, I don't believe this is sustainable in the long run.

Here's why:

• Mortgage Rates Can't Stay This High Forever: Eventually, I expect mortgage rates to come down a bit. When that happens, it will give buyers more breathing room and could spur more sales.
• Increased Inventory Will Eventually Ease Prices: As more homes come onto the market, it will give buyers more negotiating power and, hopefully, put downward pressure on prices.
• The Economy Will Stabilize: As the economy becomes more predictable, people will feel more confident about making big purchases like homes.

Now, I'm not saying home prices will suddenly crash. But I do think we'll see a more balanced market in the coming years, where buyers have more options and homes are more affordable.

Dr. Lawrence Yun, the chief economist at NAR, believes that if mortgage rates were to decline to 6%, an additional 160,000 renters could become first-time homeowners.

What Should You Do?

So, what does all of this mean for you? Here's my advice, depending on your situation:

• If You're a Buyer: Don't panic! Take your time, shop around for the best mortgage rates, and don't feel pressured to overpay. It might be worth waiting a bit to see if the market cools down.
• If You're a Seller: Be realistic about pricing your home. Buyers are more cautious these days, so you might not get as much as you would have a year ago.
• If You're a Renter: Keep saving! Take advantage of the slightly softer rental market to build up your down payment.

A Balanced Market Will Benefit Everyone

In the end, a healthy housing market is good for everyone. It's not just about high prices benefiting sellers or low prices benefiting buyers. We need a market where people can afford to buy homes, where sellers can get a fair price, and where the housing market contributes to a strong economy. This balance will take years to achieve, which is why the younger generation is finding it difficult to get into the housing market.