Record Prices and 6.6% Rates Drag US Housing to Summer Slump
A sharp drop in pending home sales and plunging builder sentiment underscore how record prices and elevated mortgage rates are turning the US housing sector into a significant drag on the broader economy.
Pending home sales fell 5.4% in June from May and dropped 0.3% year-over-year, missing analyst expectations. The decline tracks with a separate gauge showing single-family builder sentiment dropping to 34 in July, down from a revised 36 in June. Both data points reflect a market paralyzed by the intersection of record-high home prices and borrowing costs near 6.6%.
The average 30-year fixed mortgage rate began and ended June at 6.6%, well above the 5.99% level seen in late February before the start of the Iran war. Even with rates slightly lower than a year ago, mortgage purchase applications are currently down 2% compared to the same period in 2024. "The highest mortgage rates in nearly a year and the record-high national median home price together are contributing to a tepid housing market that is especially difficult for first-time homebuyers," said Lawrence Yun, chief economist at the National Association of Realtors.
For homebuilders, the affordability crunch is actively squeezing margins. Builder sentiment has remained below the 50 threshold marking negative conditions for 15 straight months, the longest such stretch since 2012. "Affordability remains the home building industry's primary challenge, as elevated mortgage rates, costly land, rising material prices, and persistent skilled labor shortages continue to affect the market," said Robert Dietz, chief economist at the National Association of Home Builders.
To move inventory, 37% of builders cut prices in July, up from 32% in May, while 63% utilized sales incentives for the 16th consecutive month. Yet existing home prices continue to defy these builder discounts, with the national median hitting a new record in June as general supply scarcity maintains upward pressure.
This dual dynamic of weak demand and sticky high prices carries outsized weight for US economic growth. "Bottom line, housing remains the downer in the US economy and according to the NAHB makes up about 15-18% of the US economy all in," wrote Peter Boockvar, chief investment officer at OnePoint BFG Wealth. Recent congressional legislation aimed at cutting permitting red tape offers a potential long-term supply fix, though Dietz noted that further state and local policy changes are still required.
