Higher prices are beginning to take their toll on U.S. home buyers. Signed contracts to buy existing homes fell unexpectedly in June, down 1.8 percent from May, according to the pending home sales index from the National Association of Realtors. This comes after five straight months of gains; sales are still 8.2 percent higher than June of 2014.
“Competition for existing houses on the market remained stiff last month, as low inventories in many markets reduced choices and pushed prices above some buyers’ comfort level,” said Lawrence Yun, chief economist for the Realtors. “The demand is there for more sales, but the determining factor will be whether or not some of these buyers decide to hold off even longer until supply improves and price growth slows.”
Tight supply has plagued the housing recovery for the past year, as potential sellers are either underwater on their mortgages or afraid they won’t be able to find another home to buy. The nation’s home builders are also still operating well below historic and current demand levels. The supply of homes for sale in June fell slightly as sales rose.
Closed sales of existing homes in June, based on contracts signed in April and May, rose 3.6 percent on a monthly basis, even as the median national home price rose to its highest level on record. That median price indicates sales are more active on the higher end of the market. Sales of the lowest priced homes actually fell. Yun had warned then that higher home prices could weaken sales in the second half of this year.
Mortgage rates did move slightly higher in June, weakening purchasing power especially for rate-sensitive, first-time home buyers. Mortgage applications to purchase a home have barely moved in July, up just 0.4 percent from four weeks ago.
Regionally, in the Northeast, pending home sales were just 0.4 percent higher month-to-month. In the Midwest and South, they fell 3 percent from May. In the West, they rose just 0.5 percent.
The Realtors are predicting the national median home price in 2015 will increase 6.5 percent from 2014 to $221,900, which would match the record high set in 2006. They predict sales for the year to increase 6.6 percent to 5.27 million, about 25 percent below the last peak set in 2005.