US Home Sales Rise in July Amid Moderating Mortgage Rates and Slower Price Growth

July’s Housing Market Snapshot

US existing home sales increased by 4.5% in July 2023 compared to the previous month, according to the National Association of Realtors (NAR). This uptick follows a period of declining sales earlier in the year, driven in part by a slight easing of mortgage rates. The average 30-year fixed mortgage rate dipped to 6.8% in July, down from a peak of nearly 7.1% in May. Meanwhile, home price growth decelerated for the sixth consecutive month, with the median existing-home price rising 4.1% year-over-year to $406,700.

What’s Driving the Trends?

• Mortgage Rate Relief: A modest decline in borrowing costs improved affordability for some buyers, though rates remain significantly higher than the sub-3% levels seen in 2021.
• Seasonal Demand: Summer typically brings higher homebuying activity, and pent-up demand contributed to July’s rebound.
• Inventory Growth: Housing supply rose to 3.3 months’ worth of inventory, up from 3.1 months in June, giving buyers more options and softening price pressures.

Implications for Real Estate Investors

Opportunities

Moderating prices and stabilizing mortgage rates could create entry points for long-term investors. Rental demand remains strong due to affordability challenges in the purchase market, supporting cash-flow potential for landlords. Additionally, slower price growth may reduce competition from speculative buyers, allowing investors to negotiate better deals.

Risks

Higher mortgage rates compared to the pandemic era continue to weigh on buyer affordability, potentially limiting upside for home price appreciation. Investors should also monitor economic headwinds, such as a potential recession or persistent inflation, which could suppress demand. Regional disparities persist, with markets in the Midwest and South outperforming pricier coastal areas.

Strategic Considerations

• Focus on Cash Flow: Prioritize properties with strong rental yields to offset higher financing costs.
• Target Affordable Markets: Markets with median prices below the national average, such as Indianapolis or Atlanta, may offer better risk-adjusted returns.
• Monitor Fed Policy: Further rate hikes could dampen demand, while rate cuts—expected in 2024—may reignite buyer competition.

The Bottom Line

July’s housing data signals a market in transition. While easing rates and slower price growth have provided marginal relief, investors must remain selective. A focus on fundamentals—such as local job growth, inventory levels, and demographic trends—will be critical to navigating a market still adjusting to the Federal Reserve’s tightening cycle.