Home sales went up in July, offering momentum to a struggling market

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• Geoff Bennett :

  The housing market showed signs of life in July with existing home sales up 2 percent from the month before, offering a bit of momentum to a market that's been struggling. The national median sales price inched up just 0.2 percent in July from a year earlier to $422,400, marking the 25th consecutive month of year-over-year price increases, and sales edged up 0.8 percent compared with July of last year.

  That's all according to a new report out today by the National Association of Realtors.

  Joining us now to break down the numbers is Daryl Fairweather, chief economist for the real estate company Redfin.

  Daryl, thanks for being with us.

• Daryl Fairweather, Chief Economist, Redfin:

  Thank you for having me.

• Geoff Bennett :

  So what's your read on today's report? Does the bump in sales suggest the market is turning a corner or is this just a temporary rebound?

• Daryl Fairweather:

  It's nice to see that there's been some improvement in home sales. I think that's reflective of there being more inventory on the market. Buyers have more to choose from, which allows for more sales to happen.

  But this improvement is coming from a near record low. We are still deep in the hole when it comes to home sales, and we're going to need to see a lot more home sales in order for this to feel like a healthy market.

• Geoff Bennett :

  And we're also seeing some big regional differences, prices falling sharply in the West and parts of the South. They are rising in the Midwest and Northeast. What explains that divide?

• Daryl Fairweather:

  It has to do with the amount of homes for sale.

  There are many more sellers than there are buyers in the South and in parts of the West, which is allowing buyers to have more negotiating power and they're getting better deals on prices. In the Midwest and the Northeast, however, there has — there was not a construction boom during the pandemic. There's much more limited inventory there.

  So, buyers have to play on sellers' terms, and they have to accept these higher valuations.

• Geoff Bennett :

  And let's talk about mortgage rates, because mortgage rates dipped slightly in July, but they remain far above the historic lows we saw during the pandemic.

  To what extent is the lock-in effect still shaping the market, people really refusing to put their homes in the market and move because they have benefited from historically low mortgage rates?

• Daryl Fairweather:

  One reason we're not seeing price cuts happening more often is because home sellers feel like it's not worth it for them to sell if they can't get a high enough price.

  They have these record low mortgage rates, which means they're not paying very much in their monthly mortgage payment. And if they were to sell and buy again, they would have to buy at these higher rates and pay a lot more money, which means that they are looking for a lot more money when it comes to the offers that they're getting.

  And if they don't get enough in terms of the offer, they will just take their home off the market and not sell. So that's putting a floor on how low prices can drop. Mortgage rates are so much higher now. Normally, we would expect prices to fall by more to compensate that, but sellers are being stubborn when it comes to their prices.

• Geoff Bennett :

  And what's your outlook for mortgage rates? Is there room for a more substantial decline?

• Daryl Fairweather:

  It really depends on what we see happen in the economy. If we see more inflation — we saw a bit hotter inflation in producer prices this last week. So that's one reason that rates might stay high, but also we're seeing a weakening job market with fewer jobs created. And that might be one reason to expect rates to fall.

  It has a lot to do with how tariffs end up impacting the overall economy. If the tariffs result in higher inflation, then the Federal Reserve will have to keep interest rates high. But if it results in fewer jobs created, then the Fed would have to step in and cut rates in order to simulate the economy.

  But we don't really know what's going to happen. It's still early days in terms of seeing the effects of the tariffs. Maybe the effects won't really be that large at all. We just don't know yet.

• Geoff Bennett :

  Yes, good point.

  Yes, the data about first-time buyers really stood out to me. First-time buyers made up just 28 percent of sales in July, down from 30 percent in June. A decade ago, the average first-time buyer was 31 years old. Now it's closer to 38 years old. What does that say about the barriers that young buyers are facing?

• Daryl Fairweather:

  Young buyers are often borrowing a substantial amount in order to afford their home, whereas existing homeowners, they are usually selling their homes. They get some proceeds from that they can put towards their next home. So they aren't taking on as big of mortgages as potentially first-time homebuyers are.

  So that mortgage rate increase is hitting first-time homebuyers a lot harder than it is existing homebuyers. And that's why we're seeing a lot of first-time homebuyers just decide to keep renting. The rental market has been pretty stable over the last couple of months. It's starting to heat up a little bit, which may be a sign of more rent increases to come.

  But for the time being, if you're comparing, say, a one-bedroom apartment to a one -bedroom condo, it's going to be more affordable in the short run to rent that apartment than it will be to buy it.

• Geoff Bennett :

  Is there any realistic path for this generation to enter the housing market in significant numbers?

• Daryl Fairweather:

  Yes, I think that there are some reasons to be optimistic.

  The Gen Z is a smaller generation than millennials were. Millennials are a bit past peak homebuying age. They're in their late 30s, not their early 30s anymore. So I think there will be less competition from the buy side in terms of buying homes. And then, on the sell side, Baby Boomers are getting older. They should be downsizing soon.

  So that could create more inventory. And then another reason to be optimistic is that many states have made it easier to build more housing. So the next time we do see an increase in demand for housing, hopefully, it will also come with an increase in supply as builders jump in to take advantage of increasing demand for homes.

• Geoff Bennett :

  Daryl Fairweather, chief economist at Redfin, great to speak with you. Thank you.

• Daryl Fairweather:

  Thank you.