NAR reports interest rate hike having expected effect on sales

As expected, higher mortgage interest rates in the spring took their toll on sales of existing single-family homes in July, according to a release from the National Association of Realtors.

Existing-home sales dropped 9.8 percent in July to a seasonally adjusted annual rate of 4.79 million units from a pace of 5.31 million units in June.

This July's sales activity also was 9.8 percent below the 5.31-million unit pace recorded in July 1999.

"In May, mortgage interest rates hit their highest level in more than five years, slowing the number of transactions closed in July," said NAR President Dennis R. Cronk in the release.

"There's always a lag effect when interest rates rise, and we typically don't see the impact for a month or so given the amount of time between a typical contract negotiation and a transaction closing," he added.

David Lereah, NAR's chief economist, said the good news is that the interest rate climate is improving.

"Mortgage interest rates have been declining recently, and we shouldn't be surprised to see the 30-year fixed rate approaching 7.75 percent by the end of the year," he said.

"This could help keep first-time buyers in the housing market and boost home sales in the months ahead," he added.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 8.15 percent in July, down from 8.29 percent in June and 8.52 percent in May.

The national average was 7.63 percent in July 1999.

The average interest rate in May was the highest since it hit 8.83 percent in February 1995.

The national median existing-home price was $143,300 in July, up 5.4 percent from July 1999 when the median price was $136,000.

The median is the midpoint. Half the homes listed sold for more, half for less than the median.

"The median price showed a notable increase in July, which is telling us that the inventory shortfall in the higher price ranges has corrected itself in many markets," Lereah said.

Housing inventory levels showed a strong increase at the end of July, rising 14.3 percent from June to a total of 1.68 million existing homes available for sale.

This represents a 4.2-month supply at the current sales pace.

"Inventory levels have recovered dramatically up 78.7 percent from the record low of only 940,000 homes on the market at the end of January," Lereah said.

The inventory at the end of July remains 14.3 percent below a year ago.