870419813_8366bea5e0_b Photo: Allan Ferguson/Fickr

Sales of existing homes in the US recorded a year-over-year drop in July for only the second time in nearly two years, according to data released yesterday by the National Association of Realtors (NAR).

Existing home sales fell 1.6 percent to a seasonally adjusted annual rate (SAAR) of 5.39 million units. This was also a 3.2 percent month-over-month drop from June.

The sales decline was more the result to a shortage of supply rather than a decline in demand, according to the NAR’s chief economist, Lawrence Yun.

National inventory of homes for sale has fallen for 14 straight months according to NAR data.

“Realtors are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows,” says Yun.

But, perhaps one reason for a growing market confidence is that young adults, ages 25-34, who have lagged in home buying, are stepping up to the plate again, according to Coldwell Banker.

“Millennials are coming back to the market again,” Doug Duncan, Fannie Mae’s chief economist, reported to the brokerage.

Aside from low inventories, there could be additional bumps in the road for home sales says Coldwell Banker. Salaries still have not bounced all the way back up to pre-recession levels. Millennials currently earn an average of $6,000 less annually in real dollar terms than the same age cohort did 10 years ago.

Lenders are also still significantly more tight-fisted than they were during the housing boom years when, it was said, anyone get approved for a mortgage, according to Coldwell Banker.

Home prices are running up much faster than inflation, as well. Nationally, the median home sold for $244,100 in July. That marked the 53rd straight month of year-over-year price gains.

The housing market is undershooting its full potential because of inadequate existing inventory combined with new home construction failing to catch up with underlying demand, according to Yun.

“As a result, sales in all regions are now flat or below a year ago and price growth isn’t slowing to a healthier and sustainable pace.”

Read the entire NAR report here.

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