Home sales fell 5.5% in July, a sharp decline from the 0.2% increase economists expected. Brad Case, chief economist at Middleburg Communities and a former Fed economist, joins Wealth! to break down the data and its signals for the state of the housing market.

“The problem with the housing market, and this is what today’s report was about, is that homes are just too expensive. It’s really, really hard to justify someone spending that much money on a property that you can’t expect to do very well in the future given the prices you’re paying for it right now,” Case explains.

He points out that falling interest rates and mortgage rates will lead to more home purchases. Although the Federal Reserve has indicated it will cut rates in September, Case believes the housing market recovery will most likely begin in November. However, he argues that cutting rates will not solve the larger problem: “Home prices are too high and buyers are wary of buying an asset that may not depreciate well in value.”

Case adds: “The only way to really solve the problem is to create more housing, not just for homeowners, but housing in general.”

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This article was written by Melanie Riehl