US July existing home sales dropped to a three-month low, home prices hit a record high for the period, and mortgage rates rose to a one-year high.

The US existing home market continues to stagnate. In July, existing home sales fell to a three-month low, as high home prices and borrowing costs deterred a large number of potential buyers. Since the end of 2022, the market has almost consistently hovered around an annualized rate of 4 million units.

The National Association of Realtors (NAR) released data on Tuesday showing that the number of signed contracts for existing home sales in July fell by 1.7% compared to the previous month, with an annualized rate of 4.06 million units, in line with the median forecast of economists surveyed by Bloomberg.

At the same time, the median price of existing home sales in July rose 2% year-on-year to $434,100, setting a record high for July. The 30-year mortgage rate has been climbing since the end of February this year, recently reaching a one-year high of 6.81%.

NAR Chief Economist Lawrence Yun said, "Existing home sales have maintained considerable stability in an environment where mortgage rates have continued to rise over the past few months," adding, "If the 30-year mortgage rate could return to around 6%, the housing market would undoubtedly see a clear recovery." However, based on current trends, this prospect remains difficult to achieve.

The continued rise in mortgage financing costs is one of the core factors suppressing existing home sales. The 30-year mortgage rate has been climbing since the end of February this year, recently reaching a one-year high of 6.81%.

The combination of higher costs and elevated home prices has kept many potential buyers out of the market. NAR data shows that first-time homebuyers accounted for just 29% of existing home sales in July, a clear drop from 33% the previous month, reflecting that this most interest rate-sensitive group is rapidly exiting the market.

Since the end of 2022, the annualized rate of existing home sales in the US has remained stuck around 4 million units, with the market waiting for a catalyst to trigger a sustained rebound, which has yet to appear.

The supply side has also failed to provide effective support. In July, existing home inventory decreased slightly by 0.6% year-on-year to 1.54 million units, still below pre-pandemic levels. Limited supply continues to put upward pressure on transaction prices.

The median price of existing home sales in July, $434,100, not only set a record high for the month but also extended the year-on-year rise in home prices that has continued since the summer of 2023. Another recent report also showed that the national median price of existing homes rose 1.5% year-on-year in the second quarter of this year.

Regionally, the largest market—the South—saw existing home sales in July decline by 3.1% month-on-month, dropping to a four-month low; the Midwest fell 2%; the West was flat; and the Northeast posted a slight increase.

Despite overall pressure, there are signs of marginal improvement in affordability indicators. The NAR Housing Affordability Index—which comprehensively measures whether the typical family's income qualifies for a mortgage on a median-priced home—rose 5.1% year-on-year in July.

First American Financial Corp. Chief Economist Mark Fleming recently noted that as household income growth has generally outpaced home price increases, nationwide housing affordability has eased somewhat compared to last year. However, he also cautioned that the recent uptick in mortgage rates has partially eroded these improvements.

With borrowing costs running high and inventory remaining tight, the US existing home market is unlikely to emerge from its lull in the short term, and the outlook for recovery still depends on a substantial shift in interest rates.