Fewer Home Contracts Were Signed in July: What It Means for Buyers
by Maurie Backman | Published on Sept. 6, 2021
Home contract volume fell earlier this summer. That may be good news for buyers.
Demand for homes has been strong since the start of the year. We can thank affordable mortgage rates for that. In fact, buyers have been so eager to get a piece of the housing market that they've been engaging in bidding wars left and right, even though that frequently means paying a lot more for a home in the process.
But new data indicates that buyer demand may be slowly waning. Signed contracts to purchase a previously owned home (as opposed to new construction) fell 1.8% in July compared to June, according to the National Association of Realtors. And fewer contracts means fewer people are buying.
Why the decline in signed contracts? It could be that buyers are finally saying no to inflated home prices. In July, the median price of an existing home was up 18% compared to the previous year. That's a massive uptick.
Buyers may also be growing tired of grappling with low inventory and having to engage in bidding wars. As of the end of July, housing inventory sat at 1.32 million units, which is a 12% decline from the year prior. All told, there was a 2.6-month supply of available homes available in July, but it normally takes a 4- or 5-month supply of properties on the market to meet demand. So buyers may be pulling back until there are more homes to choose from.
Should you buy a home today?
From a mortgage rate standpoint, now's a great time to purchase a home. But from a pricing and inventory standpoint, the opposite is true.
With home prices so inflated, you may have to take on a much higher mortgage to swing a place of your own. That means dealing with costlier monthly payments and having to come up with more cash for a down payment.
Meanwhile, limited inventory may make it harder to find a home that really meets your needs. You may have to compromise on things like square footage or features like a basement or two-car garage. Or, you may need to settle for a neighborhood that isn't your first or even second choice.
If you can afford to buy a home that appeals to you, then you may want to move forward with your plans to do so. But if buying today means busting your budget or having to make major compromises, then you may want to hold off.
There's a good chance mortgage rates will stay low for another year, if not longer, and during that time, more homes could hit the market. Plus, it may be the case that the market is already starting to cool off, as indicated by fewer signed contracts in July. Those factors combined could make early or mid-2022 a better time to buy.
That said, without a crystal ball, we can't say for sure whether buyers will fare better next year compared to 2021. But what we do know is that right now, home prices are up substantially and there still aren't many options to choose from. Those points alone make the case for a lot of buyers to sit tight and wait things out.
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