Core Insights - The U.S. real estate market is experiencing a significant disconnect, with home sales plummeting due to high borrowing costs and economic uncertainty, while home prices are reaching record highs [1][3] - The National Association of Realtors (NAR) reported a 2.7% year-over-year decline in existing home sales in June, totaling an annualized rate of 3.9 million units, the lowest since September of the previous year [1] - Despite the drop in sales, the median home price increased by 2% year-over-year to a record $435,300, indicating persistent high prices amid weak demand [1][3] Supply and Demand Dynamics - A fundamental reason for high home prices is the prolonged supply shortage, as residential construction has not kept pace with population growth [3] - Although the inventory of homes for sale has increased recently, the sales slowdown has resulted in a supply level of 4.7 months, the highest since July 2016, failing to alleviate the supply-demand imbalance [3] - Many homeowners who locked in low mortgage rates during the pandemic are reluctant to sell, further constraining the supply of existing homes [3] Impact of High Interest Rates - Persistently high mortgage rates are a key factor suppressing sales activity, with many potential buyers unable to afford the current prices [5] - A brief decline in rates earlier in the year did not sustain, as rates rose again following economic announcements [5] - If mortgage rates were to drop to 6%, an estimated 160,000 renters could transition to first-time homebuyers, highlighting the sensitivity of demand to interest rate changes [5] Market Outlook - Economists generally foresee a bleak outlook for a recovery in the U.S. real estate market within the year, with expectations of continued stagnation [6] - Additional macroeconomic factors, such as high mortgage rates, affordability issues, a weak labor market, and uncertainty about future financial conditions, are contributing to the demand slowdown [7] - Potential policy changes, including proposals to eliminate capital gains tax on home sales, add further uncertainty to the market [7]