Pending sales, housing starts fell in July as rates climbed
Signed contracts were down on a monthly and annual basis in all U.S. regions, while single-family home starts slowed to the lowest level since November 2022.
The continuous rise in mortgage rates last month had a predictably chilling effect on real estate activity, with both pending sales and construction slowing in July.
Signed residential contracts fell 2.3% compared to June and were down 2.2% year-over-year, according to the National Association of Realtors. July's pending sales were on par with the numbers seen in January — typically the slowest month of the year.
The slowdown was seen across all four regions, according to NAR, with the West reporting the biggest year-over-year decline (down 7.1%), followed by the South (-3%), Midwest (-1.7%) and Northeast (-0.2%).
The 'math simply got harder' for prospective buyers: Mortgage rates, which rose from 6.43% at the beginning of July to 6.69% at the start of August, were a significant factor in the slowdown.
"After a burst of resilience this spring, home buyers took a step back in July. With mortgage rates rising again and home prices still elevated, the math simply got harder to make work for first-time and move-up buyers alike," said Sam Williamson, senior economist at First American.
Potential for 'real opportunity' ahead: While home sales often begin to ebb in mid-summer, the key question for August is whether there's something more to the current slowdown than seasonality, according to Hannah Jones, senior economist at Realtor.com.
"Inventory tends to build and price cuts become more common as attention turns toward the school year, which could create real opportunity for buyers still active in the market, particularly if rates find some relief," Jones said.
Builders holding off on new projects: The latest data on housing starts suggests that home construction is experiencing a similar slowdown.
The annualized rate for housing starts fell 12.4% in July compared to June and dropped 13.5% year-over-year, according to the U.S. Census Bureau.
Single-family home starts were down 9.9% from June and 15.7% year-over-year. July's annualized rate of 808,000 single-family starts was the slowest pace since November 2022, when mortgage rates had surged above 7%.
Single-family completions also fell month-over-month (down 5.8%) and year-over-year (down 12.8%).
Cautious optimism? While home starts fell, single-family permits increased 2.5% from June and were up 1.1% year-over-year — a sign that builders are prepared to break ground again when conditions improve, according to Odeta Kushi, chief economist at First American.
"Builders are keeping projects moving, but they're not ready to bet on them yet," Kushi said. "Until affordability improves and buyers come back more convincingly, homebuilding is likely to remain cautious."
Builder sentiment still low, but some markets showing strength: The construction slowdown aligns with the latest builder confidence index. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index ticked up one point to 35 in August, but it has now remained below 40 for nearly a year and a half.
"Custom home builders continue to report stronger market conditions than spec builders, reflecting better conditions at the higher end of the market," said Robert Dietz, chief economist at the NAHB. "Smaller, less dense markets are also outperforming larger metropolitan areas, and smaller builders report relatively stronger conditions than larger builders."