Contract closings increased 1.3% from a month earlier to a 3.95 million annualized rate, according to figures released Thursday from the National Association of Realtors. The pace, the weakest for any July since 2010, was in line with the median forecast in a Bloomberg survey of economists. 

"Despite the modest gain, home sales are still sluggish," said NAR Chief Economist Lawrence Yun in a prepared statement. "But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates."

The residential real estate market weakened considerably after the Federal Reserve began raising interest rates in early 2022. A mix of high costs and limited supply is driving the market's malaise. The rise in borrowing costs led to a reduction in the number of properties for sale that sparked a surge in asking prices.

While potential homebuyers are currently awaiting widely expected rate cuts from the Fed, affordability may be slow to improve because of high home prices.

The NAR's report showed the median sales price in July increased 4.2% from a year earlier to $422,600. That's a record for any July in NAR data.

While the inventory of available homes picked up slightly in July to 1.33 million, it's still well below pre-pandemic levels of more than 1.9 million. That represents 4 months' supply at the current sales pace.

Yun said on a call with reporters that an almost 20% year-over-year increase in inventory indicates some homeowners are willing to surrender their 3% mortgages and list their properties.

Buyer Affordability

The combination of high prices and borrowing costs is contributing to one of the least affordable housing markets ever. The typical family in June only earned 93.3% of the qualifying income needed to afford the median-priced US home, according to the latest NAR affordability index.

While the 30-year fixed mortgage rate has dropped to 6.5%, a Mortgage Bankers Association gauge of home-purchase applications stands at the lowest since February. That suggests prospective buyers are waiting for a further decline in borrowing costs as well as some relief from high asking prices. 

The NAR's report showed 62% of the homes sold were on the market for less than a month in July — compared with 65% in June — while nearly a quarter sold above the list price, also down from the prior month.

Properties remained on the market for 24 days on average in July, compared with 22 days in June and a further sign of softening demand.

A new rule pertaining to how broker commissions are paid took effect in August, and agents are unsure as to how it will affect home sales going forward, Yun said.

Existing-home sales account for the majority of the US total and are calculated when a contract closes. The government will release July new-home sales figures on Friday.