Existing home sales saw their sharpest decline in nearly two years in June, due to the spike in mortgage rates in April and May. Sales declined 5.4%, the biggest one month decline since late 2022, according to the National Association of Realtors. The 3.89 million pace of sales was one of the slowest since 2010. Existing home sales are calculated when contracts are closed, so the 7% rates in the spring likely kept homebuyers from making the decision to purchase a home. With the median price continuing to rise more than 4% year-over-year for the past eight months, it is no wonder the only sector with an increase in sales in June was the over $1 million bucket. Inventory, while still low by historical measures, is currently at the highest level in over three years.

The outlook doesn’t seem to be getting any rosier, even as mortgage rates have fallen almost 50 basis points since May. Redfin reported that nearly 56,000 home purchases were cancelled in June, or 15% of all homes that went under contract. That was the highest percentage of cancellations for any June since 2017. Homebuyers are becoming more skittish about the cost of owning and maintaining a home. What was a seller's market is quickly becoming a buyer's market, with buyers backing out of contracts over minor issues and no longer waiving inspections. According to Redfin, sellers cut prices on nearly 20% of listed homes in June, up from 14% a year ago. Overall affordability is becoming a growing concern for the housing market. Bankrate found the hidden costs of owning and maintaining a single-family home in the U.S. now averages more than $18,000 each year.

GDP – The economy grew more than expected in the second quarter, expanding 2.8% after 1.4% growth in the first quarter. Consumer, business equipment and government spending were the key drivers of growth, all higher than anticipated. The strong dollar and focus on AI technology spurred spending. Residential investment subtracted from growth for the first time in a year as high mortgage rates stifled sales activity and new construction. As strong as activity was over the past three months, growth in the first half of 2024 is considerably slower than the 4.2% pace in the second half of 2023. This, along with slowing inflation, could persuade the Fed to begin cutting rates in the coming months.

Pre-FOMC – The markets are primed for a pivotal July FOMC meeting. While a rate cut is not expected at this time, economists are hoping to hear stronger hints that a September cut is on the table. Of course, any final decision will depend on data between now and September, but the odds are looking favorable. The yield curve steepened to -15 basis points, the tightest spread since September 2022.