June's numbers were revised lower to show a 1.6% fall to 5.06 million units.
Meanwhile, total housing inventory was up 5.6% at the end of July to 2.28 million. This represents a 5.1-month supply at the current sales pace. The median time that most homes spend on the market was 42 days in July, this is up from 37 the previous month
The national median price for existing homes was 13.7% higher than a year ago at $213,500. This is the seventeenth straight monthly rise. A key finding was that first time buyers were down from 34% of all purchases a year ago, to 29% this time around.
Distressed homes, which include foreclosures and short sales accounted for 15% of July sales, the same as June.
Economists have been watching for the impact of the run up in mortgage rates on existing and new home sales. The 30-year mortgage rate stands at 4.4% according to Freddie Mac's primary mortgage market survey (PMMS).
"Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines," said Lawrence Yun chief economist at NAR in a press release.
"The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers."
Economists at Credit Suisse expect existing home sales to fall to the lowest level in three months and post the first consecutive decline in over two years.
"One percent increases in mortgage rates over a two-month span are rare," they write. "When they have happened in the past, home sales — both existing and new — usually register a monthly decline in the second month of the two-month back-up (in our case, that's July)."
But their July monthly survey of real estate agents showed that most buyers don't expect mortgage rates to go much higher and they're waiting to see if there's a pullback in rates that could create a buying opportunity.
"There is still not a lot to choose from for homebuyers, and this tight inventory continues to limit sales gains. Other headwinds include tight underwriting standards, protracted bank approval processes, and a delayed selling process."
Existing home sales account for a larger share of the market than new homes.
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