Sales of existing homes fell more than 2% in July, as rising mortgage rates kept many would-be buyers and sellers on the sidelines.
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You may have noticed fewer for-sale signs in yards recently, even though summer is normally a busy season for buying and selling houses. Rising mortgage rates have driven many would-be buyers and sellers out of the market, and those who still want to make a deal often have to act fast, as NPR's Scott Horsley reports.
SCOTT HORSLEY, BYLINE: Sales of existing homes slumped last month. The National Association of Realtors says July sales were down almost 17% from a year ago. Cathy Trevino, who's a longtime realtor in Houston, says the rising cost of home mortgages is acting like a wet blanket on the housing market.
CATHY TREVINO: What we're looking at right now, unfortunately, because of the interest rates, we have a lot of buyers that are kind of sitting on the sidelines just waiting to see what's going to happen.
HORSLEY: The interest rate on the average home mortgage topped 7% last week, the highest it's been in more than two decades. A year ago, rates were just over 5%. That increase means someone borrowing $300,000 on a house can expect to pay about $400 more every month.
TREVINO: For first-time homebuyers, if they were looking this same time last year, they're probably kicking themselves saying I should have bought.
HORSLEY: And it's not just buyers who've been put off by these rising rates. Anyone who bought or refinanced a home in recent years is probably sitting on a mortgage in the 3% range. Bankrate analyst, Jeff Ostrowski, says that makes selling in today's environment a costly proposition.
JEFF OSTROWSKI: Those homeowners aren't going anywhere. They don't want to give up their 3% mortgage rate, especially if they're going to have to swap it out for a 7% mortgage rate. So a lot of people are just going to be staying put for longer. That's not great news for people who want to buy because it's constraining the supply of homes.
HORSLEY: Indeed, the number of existing homes on the market is down about 15% from this time last year. Within that shrinking pool of homes for sale, it's still a shark tank. Realtor Michael Fischer is working with a family that's been trying for several months to buy a home in Atlanta. More than once, they found themselves in a bidding war.
MICHAEL FISCHER: Even if you are comfortable with the pricing, when you actually start to get into the market and you're making offers, you realize that a lot of other buyers are in the same position as you are. And it makes it really challenging 'cause there's lot of competition.
HORSLEY: So even though fewer homes are selling these days, there's been no letup in the price. Realtors say the average home sold last month cost just under $407,000, about 2% more than a year ago. That's why today's high mortgage rates are particularly painful. It's true, as many longtime homeowners will tell you, interest rates in the '80s and '90s were even higher, but home prices were lower back then. Ostrowski says more than a decade of historically low interest rates allowed home prices to soar into the stratosphere.
OSTROWSKI: If you're only paying 4- or 5% for your mortgage, you can afford to stretch on the price. So we had a pretty strong home price appreciation over the past decade. And that was fueled, I think, in retrospect, in large part by low mortgage rates, but also just by supply and demand.
HORSLEY: For years after the Great Recession, the supply of new housing lagged, and builders are still playing catch-up. Some builders are trying to address affordability these days by crafting smaller houses. And some realtors say they've seen increased interest in cheaper, denser options such as townhomes and condominiums. With no sign that mortgage rates are going back down to rock-bottom levels anytime soon, Atlanta realtor Michael Fischer says we'll have to find other ways to make housing more affordable.
FISCHER: It's going to take policy work. It's going to take work within the industry, and then it's going to take the communities coming together to decide that we want to build communities that are accessible for all income brackets and all kinds of people.
HORSLEY: There is some positive news. More than a million apartments are under construction nationwide, which should put downward pressure on rent, offering a measure of relief to those who are, at least temporarily, priced out of homeownership.
Scott Horsley, NPR News, Washington.
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