Today the National Association of Realtors reported existing home sales fell again to 4.80 million. Although this is an overrun of estimates, the downward trend in sales due to rising mortgage rates and house prices continues. The wildly unhealthy housing market theme of mine is in full force now that we haven’t gotten any relief on house prices and we now have a mega jump in mortgage rates.
With the house price growth we’ve had in 2020 and 2021, my five-year price growth model I set for 2020-2024 of 23% has already been destroyed in just two years. It was a huge red flag, hence all the statements in 2021 about substandard housing.
However, the secondary negative impact was going to be more painful. Since the summer of 2020, I’ve talked about what could change the housing market, which was a 10-year yield above 1.94%, which means rates above 4%. Now that mortgage rates are above 6%, this double hit of rising prices and rates is at the heart of a wildly unhealthy housing market.
Of NRA Research: “Total existing home sales contracted slightly by 0.4% from July to a seasonally adjusted annual rate of 4.80 million in August.”
Existing home sales have more legs to fall, especially now that new listings data is down. A traditional primary resident seller is also a buyer, which means that if they don’t sign up, they’re not just taking a potential home to buy off the table – they’re also taking a future sale off the books.
Total inventory data has increased in this report from 1.31 million to 1.28 million. It doesn’t even look like we’ll hit the bottom tier of my inventory wishlist of 1.52-1.93 million this year: Wild, man, pure wild.
From NAR: “The median existing home price for all housing types in August was $389,500, a 7.7% jump from August 2021 ($361,500), as prices rose across all the regions. This marks 126 consecutive months of year-over-year increases, the longest streak on record.
Although home prices have risen in all reports this year, price growth is slowing year over year. I’m a big fan of inventory at 2019 levels. Parts of the US are at 2019 levels, and they’re not on the extremely unhealthy housing market list. Even though 2019 inventory levels were historically low, they were at their lowest level in four decades before 2020; they are a more efficient pricing market.
NRA Research “Total housing inventory recorded at the end of August was 1,280,000 units, down 1.5% from July and unchanged from a year earlier. Unsold inventory sits at 3.2 months supply at the current selling rate – the same as July and up from 2.6 months in August 2021.”
Due to revisions to last month’s data, monthly supply data has not increased. It would have fallen slightly from the last monthly print of 3.3 months, which has been revised to 3.2 months. I prefer four months of domestic supply to be balanced. However, seasonality will soon come into play, and it doesn’t look like 2022 will get us there. Unlike most people, I believe a balanced market is a four month story, not the six months people have talked about over the years. We can have efficient pricing in a four to five month housing supply market, so my target is four months.
NRA Research: “First-time buyers accounted for 29% of sales in August; Individual investors bought 16% of homes; Cash sales accounted for 24% of transactions; Distressed sales accounted for about 1% of sales; Properties generally remained on the market for 16 days.
Days on the market has always been a critical data line for me. Nothing is good when the data line is weak. I prefer 30+ days, which means it’s a more typical market with choices for people all over the country.
On the bright side, days on the market in August fell to 16 days after an all-time low of 14 days. Well-priced homes sell in America, and unrealistic homes stay on the market longer and longer.
Since total inventory levels are so low, this line of data has reached historic lows, which alarms me. We just didn’t have enough housing products for people after 2020. This explains the historic price growth since 2020 and why prices are still going up every year, even in a market where sales are down a year. on the other.
NRA Research“Year-over-year, sales were down 19.9% (5.99 million in August 2021).”
We’ve entered a period where we have high offsets for housing demand, and the year-over-year data is going to get worse through 2023 because existing home sales, much like the data for shopping app, ran a run towards the end of the year, sending existing home sales to 6.49 million in January 2022.
I’ve talked about this often with shopping app data, that we should expect significant year-over-year declines for the rest of the year, 25% to 35%. Even though the weekly data isn’t going anywhere, with rates going up, you can see 40%+ drops due to high pay and higher mortgage rates.
Overall, the report suits me. Some people might be surprised that total inventory has dropped, but with new listing data dropping since late June of this year, it’s not a shock to me that this is happening.
Is this the first step in locking in mortgage rates? We don’t want to see that in America, but it could be a reality in 2023. House price growth is falling as it should; we had a massive housing inflation event in America with house prices and mortgage rates rising after the high prices of 2020 and 2021. With mortgage rates rising, 2022 saw the housing inflation event the largest in recent modern history, as the total cost of buying a home has risen historically, a record high.
I’ve been worried about this trend since mid-February, and unfortunately the housing market is still wildly unhealthy for most of the country. However, this is not the 2002-2011 market. Different dynamics are at play here, so the economic discussion needs to be different.