1 US Economic Brief │ July 31, 2026 FX Daily Snapshot Economic Data Round-Up: A sluggish housing market constrained by affordability July 31, 2026 • Housing activity remains sluggish despite moderating home price appreciation. Although conditions differ across the existing and new home markets, both continue to face affordability challenges. As a result, home sales remain historically weak. Existing home supply remains constrained by limited turnover and the mortgage lock-in effect, while elevated inventory in the new home market appears to reflect weaker demand and slower absorption. • Going forward, the housing market is likely to remain subdued. While lower mortgage rates and continued nominal income growth may provide some support to demand, affordability challenges are expected to keep sales activity weak. A more meaningful recovery will likely require a larger decline in borrowing costs and a sustained improvement in affordability. Downside risks include further labor market deterioration and persistently high interest rates, both of which could suppress demand and delay recovery. Home values continued to moderate House price indexes, which reflect changes in home valuations, indicate that house price momentum is cooling. According to both the S&P Cotality Case-Schiller and FHFA indexes, the pace of appreciation remains well below the rapid gains observed earlier in the decade, when strong demand during the pandemic housing boom collided with limited housing supply. Price appreciation has since moved within a relatively narrow range since the start of the year (Chart 1). When adjusted for inflation, growth in home values has been persistently negative for nearly a year. Despite moderating appreciation, existing home prices remain near record highs. In June, the median price for existing homes sold was $440,600, up 1.8% from June last year (Chart 2). The median price for single-family existing homes sold also increased by 1.8% y/y in June. Meanwhile, the median price for new homes softened to $398,300 in June, a 2.7% decrease from a year ago. Although the price trends differ across the existing and new home markets, both ultimately reflect the most prominent issue in the housing market: affordability. Existing home prices remain elevated as turnover is limited, while softer prices in the new home market point to weak demand, which could both be attributed to high borrowing costs weighing on sellers of existing homes and prospective buyers. US Economic Brief MALALA LIN Assistant Vice President Economic Research Office T: +1 (929) 989 6613 E: mlin@us.mufg.jp MUFG Bank, Ltd. A member of MUFG, a global financial group
2 US Economic Brief │ July 31, 2026 Chart 1: Home price appreciation is softening Chart 2: Existing home prices are near record highs while new home prices are on a downward trend Affordability remains a key constraint for housing demand Housing affordability has been a concern weighing on homebuying demand since 2023. Recent data suggest some improvement, but affordability remains particularly strained by borrowing costs. According to the National Association of Realtors, mortgage payments as a share of income have decreased, contributing to an increase in the Housing Affordability Index (Chart 3). Continued nominal wage growth has likely helped offset some housing costs. Even so, the payment burden remains above the long-run average of roughly 20.7%. Chart 3: Affordability improved somewhat but elevated prices and borrowing costs continue to weigh on households Indeed, current economic conditions are perpetuating affordability challenges, as elevated inflation and the uncertain economic environment may delay significant changes in mortgage rate trends. The average 30-year mortgage rate continued to rise, moving to +6.7% this week (Chart 4). The 10-year Treasury yield, a key benchmark for mortgage rates, remains elevated at around 4.7%. As a result, the mortgage spread 1 , which essentially indicates how restrictive financial conditions are for borrowers, has only narrowed slightly. This suggests that although affordability has improved somewhat, borrowing conditions remain tight. Unless long-term yields move decisively lower or markets begin pricing in a Fed easing cycle, meaningful improvement in housing finance conditions is likely to remain elusive. 1 The mortgage spread measures the difference between mortgage rates and the 10-year Treasury yield.
3 US Economic Brief │ July 31, 2026 Chart 4: Mortgage financing conditions remain restrictive Going forward, low unemployment and steady job creation could help support income prospects and prevent a more pronounced weakening in housing demand. Rising incomes generally improves households' ability to absorb elevated borrowing costs, however, with the market still facing affordability challenges, homebuying activity is likely to remain constrained. Sales activity is historically weak despite modest improvement in existing homes Sales activity remains subdued overall, although sales trends also differ across the existing and new home markets. Existing home sales (single-family), which account for the vast majority of real estate transactions, increased 3.3% y/y in June to 3.73 million units (Chart 5). The 3-month moving average has continued to edge higher, suggesting some improvement in demand. Even so, sales remain historically weak (Chart 6). Meanwhile, new home sales remain under pressure. Sales growth has stayed in negative territory, and activity has continued to trend lower on a 3-month basis since January. Although some buyers may be returning to the market, elevated mortgage rates and persistent affordability challenges are likely to continue suppressing demand, keeping sales activity below historical norms. Chart 5: Home sales growth recently experienced modest improvement Chart 6: The trend for home sales volume remains historically weak
4 US Economic Brief │ July 31, 2026 Existing home inventory growth continues to moderate With existing home sales and prices gradually increasing, existing homes inventory decelerated further to 1.3% y/y in June compared to 2.0% in May and 6.8% at the start of the year. As inventory growth continued to moderate , months’ supply of existing homes remained broadly flat (Chart 7). This suggests there could be a lingering supply shortage. While inventory has increased from pandemic-era lows, existing home supply remains constrained by historical standards. Indeed, many homeowners who secured historically low fixed- rate mortgages in 2020-2021 have little incentive to sell their homes and take on a new mortgage at today's substantially higher rates. As a result, many potential sellers remain on the sidelines, limiting the flow of existing homes onto the market. This “mortgage lock - in” effect continues to hamper the supply of existing homes available for sale. Weak demand is weighing on the new home market In contrast to the existing home market, inventory dynamics in the new home market more clearly point to weak demand and slower absorption. As discussed earlier, new home sales activity and prices have softened. Concurrently, inventory levels remain elevated relative to historical norms, representing a supply of 9.5 months at the end of June (Chart 7). Recent construction data show little evidence of a renewed supply increase compared to when starts surged in 2021-2022 and completions caught up in 2023 (Chart 8). Both starts and completions have been on a downward trend since last year, suggesting new constructions are not significantly contributing to increased inventory. Instead, homes are spending longer on the market likely because buyer demand is dragging. Chart 7: Months' supply stayed flat for existing homes while inventory for new homes remained elevated… Chart 8: …but it is not because of construction activity In an effort to boost housing supply, the ROAD to Housing Act 2 was enacted into law on July 11, 2026. The legislation aims to incentivize home construction, reduce regulation barriers, restrict institutional investor purchases, and expand access to financing. If successful, these measures could support housing supply over time. However, any supply response is likely to be gradual given the long lead times associated with housing development and construction. Moreover, there is uncertainty regarding the law’s ultimate impact, as the provisions rely more on incentives over mandates. 2 Inside the Deal: What's in the Final 21st Century ROAD to Housing Act • Bipartisan Policy Center
5 US Economic Brief │ July 31, 2026 More visible evidence of a supply recovery in the rental sector While evidence of a supply recovery remains limited in the home purchase market, it is more visible in the rental sector. Multi-family construction surged during 2021-2023 and record numbers of apartment projects were delivered in 2024-2025 (Chart 9). As a result, vacancies increased, and though they may vary across regions, overall rent growth has slowed sharply (Chart 10). Unlike increasing inventory in the for-sale market, which appears partly driven by weak demand and low turnover, softer rent growth is more clearly linked to an increase in available housing supply. The rental market therefore provides stronger evidence that post-pandemic housing imbalances are easing through supply expansion. Chart 9: The multi-family construction boom likely contributed to supply increase in the rental market Chart 10: Higher vacancy rates are slowing rent growth Moreover, the gap between homeownership costs and rents has been especially wide after the pandemic housing boom (Chart 11). Over the same period, the homeownership rate has largely stagnated, suggesting that higher ownership costs may be discouraging some households from transitioning into homeownership. As a result, renting has become a comparatively more attractive option for many households, potentially delaying the transition from renting to homeownership and limiting the pace of recovery in home sales. Chart 11: Owning a home is far more costly than renting as the homeownership rate has largely stagnated
6 US Economic Brief │ July 31, 2026 Macro implications and risks to housing activity The housing market is likely to remain weak in the near term. While continued labor market resilience and wage growth could support homebuying demand, persistent affordability challenges and the ongoing mortgage-rate lock-in effect that have been constraining buyers and sellers will likely continue to weigh on activity. Borrowing conditions will remain an important determinant of the outlook. Precisely, a more meaningful recovery in housing demand will likely require a more sustained decline in mortgage rates. Risks to the outlook remain tilted to the downside. As markets price in Fed policy uncertainty 3 , borrowing costs could remain higher for longer, further perpetuating unaffordability and suppressing home sales. Another downside risk is labor market deterioration. Rising unemployment would weaken household formation, increase financial stress, and reduce housing demand, including in the rental market. Looking ahead, housing is unlikely to become a major driver of economic growth in the near term. The outlook will largely depend on the path of mortgage rates, labor market conditions, and affordability, which will determine whether the market transitions to a healthy recovery or remains bound by weak demand and limited turnover. 3 Warsh-led Fed leaves rates on hold and a bond market scratching its head | Reuters
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