The resale market remains in a slump

Summary

Higher-for-longer mortgage rates drain demand

Existing home sales fell 5.4% in June, the fourth consecutive slip reflecting the numerous affordability challenges currently afflicting homebuyers. As of June, the pace of resales nearly retreated to the prior cycle low reached last October. A resurgence in mortgage rates has kept the housing market in a lull this year. The 30-year fixed mortgage rate surpassed 7.0% toward the end of April and stayed there through most of May, stifling buyer demand. Although resale inventories have improved considerably, the combination of rising prices and higher financing costs are likely to keep a lid on housing market activity in the months ahead. Pending home sales, which tend to lead existing home sales by a month or two, slumped to its lowest level in May on record going back to 2004.

We remain cautiously optimistic about the path of housing demand, however. Although still elevated, the average mortgage rate recently hit an 18-week low during the third week of July. Our expectations for monetary policy easing this fall, if realized, would likely correspond to additional mortgage rate improvements and help to bring buyers back from the sidelines.

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