Written by: Internal Analysis & Opinion Writers
The U.S. housing market lost additional momentum in July as rising mortgage rates and stubbornly high home prices discouraged prospective buyers from moving forward with purchases. Existing-home sales declined for the second consecutive month, reinforcing concerns that affordability continues to prevent a stronger housing recovery even as demand remains present in many parts of the country.
According to data from the National Association of Realtors, sales of previously owned homes fell 1.7% in July from the previous month to a seasonally adjusted annual rate of 4.06 million units. Despite the monthly decline, sales remained 0.7% higher than they were during the same period one year earlier, suggesting the market has improved slightly on an annual basis even while struggling to generate consistent momentum.
Mortgage rates played a major role in July's slowdown. The average rate on a 30-year fixed mortgage increased during the month, rising from approximately 6.43% at the beginning of July to 6.69% by the end of the month. For borrowers purchasing homes at today's elevated prices, even a relatively small increase in mortgage rates can add hundreds of dollars to monthly payments and reduce overall purchasing power.
Home prices are adding another layer to the affordability problem. The median price of an existing home sold in July reached $434,100, representing a 2% increase from one year earlier and one of the highest median prices on record. Buyers are therefore confronting the difficult combination of higher financing costs and home values that remain near historic highs.
National Association of Realtors Chief Economist Lawrence Yun has repeatedly emphasized the importance of mortgage rates to housing demand. Speaking about the current market, Yun pointed to borrowing costs as a key factor preventing a stronger recovery. The housing market has demonstrated throughout the year that buyers respond quickly when rates decline, but demand can retreat just as quickly when financing costs rise again.
Inventory also moved in the wrong direction during July. The number of existing homes available for sale declined 1.9% from June to approximately 1.54 million units. At the current sales pace, that represents about a 4.6-month supply of available homes. Although inventory conditions have improved considerably from the extreme shortages experienced during the pandemic-era housing boom, supply remains below levels traditionally associated with a balanced market.
The shortage of affordable homes is particularly difficult for first-time buyers. First-time purchasers represented approximately 29% of existing-home transactions during July, significantly below the roughly 40% share that housing economists generally associate with a healthier market. Higher mortgage rates, limited savings, and elevated home prices continue making it difficult for younger households to compete.
The market is also becoming increasingly divided by price. Sales of lower-priced homes remain particularly weak because affordability constraints affect moderate-income households more severely. Meanwhile, sales activity among more expensive properties has shown greater resilience, reflecting the ability of higher-income and wealthier buyers to absorb elevated borrowing costs or purchase properties with larger down payments and cash.
Another challenge involves existing homeowners who secured exceptionally low mortgage rates during 2020 and 2021. Millions of homeowners continue holding fixed mortgage rates well below today's market levels, creating little financial incentive to sell their homes and replace those loans with significantly more expensive financing. This so-called lock-in effect continues restricting the supply of existing homes available for purchase.
Despite the difficult environment, buyer demand has not disappeared. Some households that postponed purchases during previous years are gradually returning to the market because of changing family needs, employment relocations, marriages, divorces, or other life events. That pent-up demand could provide meaningful support if mortgage rates eventually begin moving lower.
Housing economists remain cautious about predicting when meaningful relief will arrive. Mortgage rates are influenced by Treasury yields, inflation expectations, economic growth, geopolitical developments, and investor sentiment, making short-term movements extremely difficult to forecast. Any sustained decline in borrowing costs could quickly improve affordability and bring additional buyers back into the market.
For buyers who remain active, current conditions may provide some advantages. Slower sales and longer marketing periods can create opportunities to negotiate prices, seller concessions, repairs, or closing-cost assistance that were much harder to obtain during the intensely competitive housing market several years ago.
Ultimately, July's decline demonstrates how sensitive today's housing market remains to mortgage rates. Consumers still want to purchase homes, but affordability continues determining how many can realistically complete a transaction. Until borrowing costs ease or home prices become more affordable relative to household incomes, existing-home sales may continue moving within a relatively narrow range. Any assessment of where the market goes next should be based on verified housing, mortgage, and economic data rather than assumptions about when rates or prices will change.
