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Home Sales Plunge to 14-Year Low in June Due to Severe Market Constraints

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Sales of Pre-Owned Homes Decline as Supply Shortage Persists

Decrease in Sales and Limited Supply

Sales of pre-owned homes fell by 3.3% in June compared to May, reaching a seasonally adjusted annualized rate of 4.16 million units, according to the National Association of Realtors. This represents an 18.9% decline from June of the previous year and indicates the slowest sales pace for June since 2009. The main reason for this continued weakness in the housing market is the critical lack of supply. At the end of June, there were only 1.08 million homes for sale, a decrease of 13.6% compared to June 2022. This limited supply translates to a 3.1-month supply at the current sales pace, far below the balanced level of a six-month supply for both buyers and sellers.

Impact on Home Prices

The scarcity of available homes is exerting pressure on home prices. In June, the median price of an existing home sold was $410,200, the second-highest price on record, as reported by the Realtors. Although last June's price was slightly higher, the median measure also reflects the types of homes being sold. Currently, with mortgage rates significantly higher than last year, the low end of the market sees the most activity. Chief economist for the Realtors, Lawrence Yun, stated that while home sales have declined, prices have remained stable in most parts of the country due to limited supply. In fact, one-third of homes sold in the latest month were sold above the list price, indicating multiple-offer situations.

Impact on Affordability and First-Time Buyers

Affordability is becoming a major concern as mortgage rates continue to rise. June sales are based on closings, which typically occur for contracts signed in April and May. At that time, mortgage rates hovered around the mid-6% range before rising to over 7% by the end of May and staying in the 7% range throughout June. Consequently, sales are unlikely to recover in the near future. First-time buyers are especially affected, with their share of June sales dropping to 26%, the lowest since this metric began being tracked.

The Recovery of the Higher-End Market

Although sales declined across all price points, the higher-end market seems to be recovering more quickly than lower-priced segments. Last year, higher-priced home sales experienced a sharp decline, but this trend has shifted. As competition intensifies, cash offers are becoming increasingly common among buyers. In June, all-cash sales accounted for 26% of transactions, slightly higher than both May and June of the previous year.

Opportunities in the New Home Market

While the existing home market continues to face challenges, sales of newly built homes are benefiting. The largest homebuilder in the nation, DR Horton, reported a significant increase in new orders in its latest earnings release. Despite higher mortgage rates and inflationary pressures, the company's net sales orders surged by 37% compared to the previous year quarter. Demographics supporting housing demand and a limited supply of new and existing homes at affordable price points are driving this growth, according to Donald Horton, Chairman of the Board.

Conclusion: Navigating the Impact of Declining Pre-Owned Home Sales on New Businesses

The persisting supply shortage and declining sales of pre-owned homes are presenting both challenges and opportunities for new businesses in the real estate industry. With sales dropping and the limited availability of homes, it is crucial for new businesses to adapt their strategies to the changing market conditions.

The Challenge of Affordability

The rising mortgage rates and decreasing affordability pose a significant hurdle for new businesses targeting first-time buyers. The share of first-time buyers in June sales dropped to its lowest point since tracking began, indicating the difficulties faced by this segment. New businesses should focus on finding innovative solutions to address affordability concerns, such as offering competitive financing options or exploring partnerships with government agencies.

Expanding into the Higher-End Market

Although overall sales declined, the higher-end market shows signs of a faster recovery. New businesses could consider tapping into this segment by offering upscale properties or luxury services. Capitalizing on the increasing cash offers and competition in this market could be a lucrative avenue for growth.

Opportunities in the New Home Market

The challenges faced by the pre-owned home market present an opportunity for new businesses in the new home construction sector. With sales of newly built homes benefiting from the limited supply of existing homes, new businesses can focus on meeting the demand for affordable new homes. By leveraging demographic trends and providing homes at accessible price points, new businesses can carve out a niche in this growing market. In navigating these dynamics, new businesses should closely monitor the mortgage rate trends and explore partnerships with financial institutions to offer competitive financing options. Additionally, understanding local market conditions and consumer preferences will be crucial to developing targeted marketing strategies. While the declining pre-owned home sales may present obstacles, new businesses can thrive by adapting their approach and capitalizing on emerging opportunities. By remaining agile, innovative, and responsive to the evolving landscape, new businesses can successfully navigate this challenging market and establish their presence in the real estate industry. Article First Published at: https://www.cnbc.com/2023/07/20/june-home-sales-drop-to-the-slowest-pace-in-14-years.html

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