Existing home sales surprise with positive growth in July

Existing home sales in July exceeded monthly estimates and demonstrated year-over-year growth. However, it’s important to remember that we started from a low baseline for sales in 2024, so this year-over-year growth needs to be viewed in context. For those who have been following our weekly tracker, we’ve noted that year-over-year data should turn positive soon.

Two months ago, the National Association of Realtors (NAR) reported flat growth, and this latest report indicates an increase of nearly 1%. In reality, not much is happening with sales, but recently we did finally break under the key level of 6.64% mortgage rates and if we can just get rates toward 6% with some duration, existing home sales can get some real growth. This is something I discussed on CNBC yesterday while talking on Squawk Box.

Home sales data

From NAR: Total existing-home sales increased 2.0% from June to a seasonally adjusted annual rate of 4.01 million in July.

The story of existing home sales has remained the same since the end of 2022. Existing home sales experienced the fastest and most significant decline in 2022, and progress has been stagnant for years. The only time we’ve seen an uptick in demand outside of the seasonal increase has been when mortgage rates have dropped from 6.64% to 6%. The challenge is that mortgage rates rarely stay near 6% for long, and when they rise, demand slows down once again.

It has been almost three years since the major drop in existing home sales, with mortgage rates fluctuating between 6% and 8% during this time. As a result, we have established a solid, low historical base for sales. 

As illustrated in the chart below, when mortgage rates fall, home sales typically increase. One key factor that has not occurred in this cycle is a recession that would drive rates lower. However, we don’t necessarily need rates below 6% to see an increase in sales; the past few years have shown that we need rates to be closer to 6% to stimulate some growth.

Housing inventory data

Inventory in July, from NAR:

• 1.55 million units: Total housing inventory, up 0.6% from June and increased 15.7% from July 2024 (1.34 million).
• 4.6-month supply of unsold inventory, down from 4.7 months in June and up from 4 months in July 2024.

Housing inventory data has made me happy all year, and I finally reached my target of over 1.52 million in active inventory. This is the threshold at which my discussions about low housing inventory come to an end. If we can maintain inventory levels between 1.52 million and 1.93 million, we will have a sufficient supply for a functioning marketplace.

However, our weekly fresh inventory has been slowing down and even turned negative in August. We track inventory somewhat differently than NAR. Typically, the NAR’s total active inventory peaks between June and August, so we may see one more report of rising inventory before the seasonal decline sets in.

As shown in the chart below, we haven’t returned to the normal range of 2-2.5 million active listings that we’ve traditionally had for decades. Nonetheless, we’ve made significant progress on inventory this year.

Conclusion

I was delighted to see slight year-over-year growth in the report today. Inventory remained stable, price growth has slowed down and sales showed a slight year-over-year increase, which we anticipated based on our Housing Market Tracker data. Given elevated home prices, along with taxes, insurance and mortgage rates, it’s encouraging that we were able to maintain sales despite rates being above the 6.64% mark this year.

I recommend following our weekend tracker data, as it is significantly ahead of the NAR or Case-Shiller reports. Our observations have been encouraging.