Dive Brief:

• Existing home sales fell 3.2% between June and July to a seasonally adjusted annual rate of 5.39 million, the National Association of Realtors reported Wednesday. July's pace of existing home sales was 1.6% below July 2015 — marking only the second time in nearly two years that sales declined year over year.
• Sales dipped in all major U.S. regions last month, with the exception of the West. The share of first-time buyers in the U.S. slipped to 32% in July, down from 33% in June.
• The median existing home price in July was $244,100 — 5.3% higher than July 2015. July marked the 53rd consecutive month of year-over-year price gains.

Dive Insight:

July's home sales pace came in below expectations, as economists surveyed by MarketWatch predicted sales would only slip to a 5.48 million rate. 

NAR Chief Economist said the drop in existing home sales last month confirmed the group's ongoing warnings that "severely restrained inventory and the tightening grip it's putting on affordability" would catch up to the market and hinder stronger sales growth. "The lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows," he said in a release.

While tight inventory conditions have been a persistent concern for the residential industry, recent reports of increased housing starts and rising builder confidence suggest that homebuilders are just starting to feel more comfortable building new homes. The question remains whether that additional inventory will be in the starter-home market, which has been severely lacking since lower-end buyers fled to the rental side.

Aside from the disappointing existing home sales numbers, housing reports this month have been stronger than expected, as builder confidence rose two points, housing starts increased 2.1%, and new home sales soared 12.4%. Pending home sales released on Aug. 31 will round out this month's residential reports.