U.S. June existing home sales fell to the lowest level in nearly 15 years, with home prices hitting a new all-time high

The U.S. real estate market continues to exhibit a profound phenomenon of "disconnection": despite home sales activity plummeting to a standstill due to high borrowing costs and economic uncertainty, home prices have conversely reached a historic high.

On July 23, the National Association of Realtors (NAR) released data showing that the total number of existing home sales in the U.S. fell 2.7% year-on-year in June, to an annualized rate of 3.9 million units, the lowest level since September of last year, and below the market expectation of 4 million units. This is the latest signal of persistently weak market demand.

However, in stark contrast to the decline in sales, the median sale price of existing homes in June rose 2% year-on-year, reaching a record $435,300. Stubbornly high home prices combined with high interest rates have put pressure on the affordability of many potential homebuyers, leading to a failure of expectations for the spring homebuying season this year.

Ali Wolf, chief economist at construction data company Zonda, warned:

I believe this disconnection will not last long; in an environment of declining demand, home prices cannot rise indefinitely.

Supply Shortage is the Main Cause of High Home Prices

The resilience of U.S. home prices in the face of weak demand is fundamentally due to "years of supply shortages."

NAR chief economist Lawrence Yun pointed out that the pace of residential construction continues to lag behind population growth, which is a fundamental factor driving up home prices.

Although the inventory of homes for sale in the market has increased in recent months, the slowdown in sales has also resulted in an inventory supply measured at 4.7 months based on the current sales pace, reaching a new high since July 2016, but this has not effectively alleviated the overall supply-demand imbalance in the market.

Many homeowners who locked in ultra-low mortgage rates during the pandemic choose not to sell their homes due to unwillingness to give up their existing favorable rates, and this "lock-in effect" further restricts the effective supply in the secondary housing market.

Economists at Goldman Sachs stated in a recent report that 87% of mortgage holders have rates lower than current rates, and two-thirds of borrowing costs are 2 percentage points lower than current rates, "which strongly suppresses their willingness to move."

High Interest Rates and High Home Prices "Dissuade" Buyers

On the demand side, persistently high mortgage rates are the key factor suppressing sales activity The chief economist of the real estate consulting firm Cotality, Selma Hepp, stated that the market originally expected the spring home buying season to bring a boost, but high prices and interest rates have left many potential buyers unable to afford, resulting in sales remaining "lukewarm."

The brief decline in interest rates at the beginning of the year provided a moment of relief, but after Trump announced the so-called "reciprocal tariff" plan in early April, interest rates rose again.

The suppressive effect of high interest rates on demand is evident. Lawrence Yun cited NAR's analysis, stating that if mortgage rates could drop to 6%, an additional 160,000 renters would transition to first-time homebuyers.

Dim Prospects for Market Recovery

Looking ahead, economists generally believe that the U.S. real estate market is unlikely to recover this year. Selma Hepp bluntly stated:

As we are now entering a seasonal off-peak period, I do not see sales improving. We are still hovering at the bottom.

In addition to the affordability issues caused by high interest rates and home prices, other macroeconomic factors also pose resistance. Citigroup economist Veronica Clark believes:

Additional drag on demand may come from multiple factors, including still high mortgage rates, widespread affordability issues, a weak labor market, and buyers' uncertainty about their future financial situation.

Against this backdrop, potential policy changes also add new uncertainties to the market. Trump has publicly stated:

Due to Federal Reserve Chairman "Mr. Too Late" Powell's refusal to cut interest rates, the U.S. housing market is lagging.

Wall Street Journal previously mentioned that Trump is considering a proposal to eliminate capital gains tax on home sales. According to current U.S. tax law, taxpayers can exempt up to $250,000 in capital gains tax when selling a residence; for couples filing jointly, the exemption doubles. However, this exemption has not been adjusted since 1997