Home prices driving more Americans out of the market

Americans are pumping the brakes on home purchases even as — or perhaps because — prices have hit new record highs.

Driving the news: Existing-home sales fell for the fifth straight month in June, declining 5.4% from May and 14.2% from a year earlier, the National Association of Realtors reported Wednesday.

• Meanwhile, mortgage applications fell 6.3% last week, compared with the previous week, hitting their lowest point since 2000, the Mortgage Bankers Association reported Wednesday.
• The median sales price of existing homes was up 13.4% year-over-year to $416,000, an all-time high.

Why it matters: Homeownership is one of the primary means through which Americans build wealth and ensure their financial sustainability across economic cycles.

The big picture: With consumer confidence hitting an all-time low in June and the Fed poised to hike interest rates further amid runaway inflation, the cost of homeownership is driving more people out of the market.

• In the second quarter, it took first-time buyers with median income an average of nine years to save up enough to make a 10% down payment, S&P Global Ratings reported Wednesday.
• That's more than double the time it took immediately before the pandemic, and it's the most since the third quarter of 2008, when the housing bubble was popping.
• "Falling housing affordability continues to take a toll on potential home buyers," National Association of Realtors chief economist Lawrence Yun said in a statement. "Both mortgage rates and home prices have risen too sharply in a short span of time."

Of note: Homebuilders are becoming wary, too.

• Homebuilder sentiment experienced its second-largest one-month drop ever in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index, released Monday.
• "The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs," Joel Kan, MBA’s associated vice president of economic and industry forecasting, said Wednesday in a statement.

What we're watching: Whether and when sellers are forced to lower prices to attract buyers back into the market.

• "With affordability looking as stretched as it was during the Global Financial Crisis (GFC), home buyer sentiment is in a pit and points to a further fall in sales," Capital Economics assistant property economist Sam Hall wrote Wednesday.