The National Association of Realtors reported this morning that sales of existing homes declined slightly in June, posting a seasonally adjusted annual rate of 6.62 million units sold. It's the latest sign that rising interest rates continue to cool the once-sizzling housing market.
The June sales number is a drop of 1.3 percent from May's upwardly revised rate of 6.71 million, and it is almost 9 percent below the sales pace from a year ago. A decline was expected, with the consensus estimate of economists putting the sale pace at 6.6 million units.
According to the market survey, the median sales price for a preowned home was $231,000, up about 1 percent from the median price a year ago. That's the slowest one-year price increase in more than a decade, and it comes just a few months after the hottest one-year increase ever (October 2005 saw prices up 16.8 percent over the previous year).
What's Happening Here?
As predicted, the housing market is slowing as interest rates make their way up from historically low levels. According to Freddie Mac, the average 30-year fixed rate note came with a 6.68 percent interest rate in June. That's up from 5.58 percent a year ago.
When rates go up, buyers hesitate to close a deal. Quite simply, it costs more in monthly payments to buy a house today than it did a year ago.
But that's not the only part of the equation.
The inventory of homes for sale is increasing to a level that hasn't been seen since July 1997. The survey shows that in June, the nation had a 6.8-month supply of homes. When supplies tick up, buyers expect incentives, and price drops to close on a deal.
"Sellers have recognized that they need to be more competitive in their pricing, given the rise in housing inventories," said David Lereah, NAR's chief economist. "Home prices are only a little higher than a year ago."
Most economists (including Fed Chief Ben Bernanke) believe the market cool-down is under control. We're not seeing a crash, but a manageable slowdown in the market.