Weakest home sales figures in over a decade may be on the way

Homeowners' reluctance to give up their favorable interest rates may end up pushing home sales to their lowest levels in over ten years, according to Realtor.com

The number of active home listings on the market fell 6.4% compared to July 2022, as homeowners' hesitation to sell spelled fewer opportunities for willing buyers, the property-listing platform said. On a typical day in July there were 45,000 fewer homes available for purchase compared to the same time last year. 

The drop marked the first yearly decline in Realtor.com's monthly trends reports since April 2022. In contrast, June's data showed active listings up 7.1% compared to the same month the year before.

Month over month, though, numbers exhibited more typical growth of 5.4% from June. And in a hint of potential price relief, median housing costs edged downward for the second month in row, decreasing 0.9% to $440,000.

"While a second monthly year-over-year decline in list prices bodes well for potential buyers, the ongoing lack of homes available for sale continues to prop up home prices and will keep declines relatively modest for the remainder of the year," Realtor.com Chief Economist Danielle Hale said in a press release.

Western markets saw the largest active-listing count decline from one year earlier, dropping 33.4%. The Northeast saw 21.1% fewer homes on market, while numbers in the Midwest fell 14.5%. The Southeast, though, recorded the only annual gain in the nation, with 2.8% more active listings. 

Underscoring the sluggish churn in available inventory, new home listings coming to market in July dropped 20.8% from the prior year and 5.9% from June. None of the 50 largest metropolitan areas posted increases in new listings from July 2022, with Phoenix, Seattle and San Jose, California, reporting the largest pullbacks.

Economists throughout the housing and lending industry have regularly highlighted how current interest rates, which have more than doubled since early last year, are limiting inventory and hurting affordability. While July's median price inched downward, the current level is down by 2% from the all-time high of $449,000 recorded in June 2022. That's due in part to the lock-in effect discouraging homeowners from selling.   

"Interest rate hikes continue to further cut into buyers' purchasing power, although they appear to have adapted to the higher mortgage rate environment faster than sellers, many of whom are still on the sidelines, locked in to lower interest rates and unwilling to cash in their home's equity to purchase another," Hale said. 

"That's putting a damper on home sales, which will likely post their smallest annual tally this year in over a decade."

The inventory shortfall also means fewer likely cuts from the original listing price. The share of sellers slashing their asking prices decreased to 15.5% in July compared to 19.1% a year earlier. That percentage is also below typical levels reported between 2017 to 2019. 

Among the 50 largest metropolitan areas, the median sale price ranged from a low of $245,000 in Cleveland to upwards of $1 million in four California markets.

While data showed fewer homes might be coming to market in Western cities, consumers from the region are also more likely to consider relocating in search of greater affordability, Realtor.com also found. Approximately 67.7% of home buyers from the Western U.S. were likely to search for properties outside their market in the second quarter, followed by Northeastern shoppers at 59.9%. The nationwide average came out to 60.3%, and home buyers were more likely to search for new properties in nearby cities or states when considering relocation.

"Housing affordability isn't likely to improve anytime soon, so it's not surprising to see that Americans are on the move and increasingly searching for homes in more affordable areas of the country where they can stretch their housing dollars further," said Jiayi Xu, Realtor.com economist. "Sellers are much more likely to see interest from out-of-towners than in years past."