After rebounding earlier this year, existing home sales fell for a second straight month in July. The correction is likely to continue in the coming months as existing home inventory remains depressed and demand is weakening. Using mortgage purchase applications as a proxy, existing home sales are likely to reach a 13-year low soon.
Low Existing Home Inventory Maintains Prices High
One of the primary reasons behind this decline is the reluctance of homeowners to sell their properties. Many homeowners are choosing to stay put, as moving would entail giving up their current, more affordable mortgage rates (“lock-in effect”). The average 30-year-fixed mortgage rate in August, more than doubled compared to August 2021. In this context, according to a Redfin report, “More than nine of every 10 (91.8%) US homeowners with mortgages have an interest rate below 6%”. In addition, the report also shows almost 60% of mortgage holders have a rate below 4%!