Existing-home sales slipped again in August as rising mortgage rates make housing prices the least affordable ever. Despite denials in many corners, a crash is underway.
The National Association of Realtors® NAR® reports Existing-Home Sales Decreased 0.7% in August.
Highlights
- Existing-home sales retreated 0.7% in August to a seasonally adjusted annual rate of 4.04 million.
- Sales dropped 15.3% from one year ago.
- The median existing-home sales price climbed 3.9% from one year ago to $407,100, an increase of 3.9% from August 2022 ($391,700). It’s the third consecutive month the median sales price surpassed $400,000.
- The inventory of unsold existing homes dipped 0.9% from the prior month to 1.1 million at the end of August, or the equivalent of 3.3 months’ supply at the current monthly sales pace.
- First-time buyers were responsible for 29% of sales in August, down from 30% in July and identical to August 2022.
- All-cash sales accounted for 27% of transactions in August, up from 26% in July and 24% in August 2022.
Existing Home Sales Seasonally Adjusted
Existing-Home Sales Month’s Supply
Supply of homes is up 4 consecutive months hitting a level last seen in November of 2022. Yet, median price keeps rising.
Existing Home Sales Long Term
Yes, This is a Crash
- Existing-home sales are down 35.8 percent in 2.5 years.
- Existing home sales are back to a level seen in the mid 1970s.
- If there is a decline next month, an that is highly likely, existing-home sales will drop to a 12-year low.
Real estate tooters keep telling me there is no crash.
What the heck are the above stats? Chopped liver? An egg salad sandwich?
Prices have not crashed but transactions have. Crashes are rare, but we are in one now, from a transaction perspective.
People who want to move are effectively trapped in their houses because they do not want to trade a sub-3% mortgage for a 7.0% mortgage.
The bidding wars we do see are from people who are price insensitive. They make for amusing anecdotes but the above chart shows the real picture.
This crash is likely to last longer because intertest rates are likely to stay higher for longer because the Fed fears stoking more inflation.
Home sales mean appliance sales, new furniture, cabinets, new carpet, landscaping, etc. Who doesn’t spend a lot more money when they move into a new home?
Yet, from a price perspective, the bubble is still expanding.
The Housing Bubble Is Expanding Again
Chart Notes
- The latest Case-Shiller home price indexes is for June. It represents repeat sales of the same house in roughly a April-May timeframe.
- OER stands for Owners’ Equivalent rent. It’s the price one would pay to rent one’s own home, unfurnished, without utilities.
- CPI is the consumer price index.
- Rent of primary resident is just what it sounds.
- CPI, OER, and Rent as as measured by the Bureau of Labor Statistics (BLS).
Home prices wildly disconnected from the CPI in 2000 and in 2013. The disconnect accelerated in 2020.
After a two-month decline in most markets, prices are again on the rise.
Monthly payments are approaching triple from February of 2020 for the exact same house. That does not include home insurance or taxes.
Good luck with that.
Consumer Price Inflation Jumps 0.6 Percent Led by Energy and Shelter
On September 13, I noted Consumer Price Inflation Jumps 0.6 Percent Led by Energy and Shelter
The price of gasoline rose 10.6 percent, rent another 0.5 percent, shelter, 0.3 percent, and new cars 0.3 percent leading the way for a 0.6 percent increase in the CPI in August.
The price of rent has gone up at least 0.4 percent for 25 straight months. Not to worry, Paul Krugman says this is lagging.
Do Renters Matter?
A comment I frequently hear on Twitter is that home prices don’t matter because the home ownership rate is 65.9 percent. That means renters constitute “only” 34.1 percent.
Yeah right. Tell the 34.1 percent that they don’t matter.
Fed Expresses Uncertainty, Worries About Inflation, Fires Warning Shot on More Hikes
Yesterday, I noted Fed Expresses Uncertainty, Worries About Inflation, Fires Warning Shot on More Hikes
Key Takeaways
- Inflation elevated
- Tighter credit weighs on activity
- Impact of tighter credit on inflation is uncertain.
- Committee is highly attentive to inflation risks
The rest of the statement is typical boilerplate about monitoring inflation and balance sheet reduction.
Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer
Fed’s Tightrope Dilemma
Today, I noted Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer
The dot plot of FOMC participants is for tighter policy through all of next year.
The longer the Fed holds rates high, the longer the housing crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.
That is the Fed’s tightrope dilemma, of its own making. If you have any confidence in the Fed you have seriously misplaced confidence. The Fed is a pack of group-think economic illiterate wizards, not the inflation fighters they pretend to be.
Supposedly the real time indices from zillow and some other rental index have been falling drastically. I do not know if they are accurate but if they are that will lead to the data above on rent prices coming down
Yeah, but those New Yorkers that subscribe to the NYT love him. Have you ever read the comments following one of his articles? Those subscribers absolutely swoon over him. I think he’s a douche-bag.
Rents unaffordable. Housing unaffordable.
Biidonvilles will be the result. A big thank you to the next generation.
The crash in housing has indeed started. It seems too little too late for so many however.
I would not bet prices drop much for existing homes cause people are forced to sell
DONT FORGET cost of having home in USA is about 1-2% of (insurance+upkeep. etc)
so people will just wait out for new upswing in prices.
alx
=Existing home sales are back to a level seen in the mid 1970s.
it is even worse.
ppl of USA was 200+ mil in 1970. now it is 330+ mil
Yes, this is a crash. This time, instead of crashing down, prices are crashing up.
Agreed! Classic melt up!
This housing market is experiencing a price/volume divergence, which often happens at major turning points. At tops, volume falls first and then price. At bottoms, volume increases first, followed by price. The price is going to head lower.
Banks probably feel safe that any mortgages delinquency can be satisfied by getting the owner to sell the house before a foreclosure occurs. This frees money for banks to lend at higher rates and shorter terms. Once price starts to come down, banks will be in trouble.
Few buyers, few sellers, few transactions. It will be interesting to see which side breaks first.
I think price breaks but nothing like 2007-2009. We do not have liar loans now and most mortgages were refinanced lower so there will not be much forced selling.
It won’t be anything like 2009 because Congress / Fed runs the country based on MMT. Pocahontas will ensure rent & mortgage relief are trotted out once things get bad enough. Delinquency rates above 5% are a thing of the past.
We don’t have liar loans but we have 40% excess deaths. How many people will sell because they can’t afford to keep them. Some will stay in the homes until foreclosure as they can stay for free up to 5 years during the foreclosure process.
“Why not exclude everything?”
MIKE, don’t tempt them. They are considering it now, as we communicate here.
“NOTHING TO SEE HERE FOLKS, move along!”
Off topic but the 20 year treasury is approaching 5% and TLT is down hard today. I will start going long on TLT at the next Fed hike or perhaps sooner if it breaks below 90. I will accumulate slowly as anything can happen but I am starting to lick my chops with big greedy eyes.
Agreed. I bought in at $100 and then at $94. I’m going to keep nibbling on the way down. While I don’t think we’re anywhere near a big recession, it’s down from $179 at the start of COVID. There’s lots of room to move higher, once a real recession arrives. And, it’s paying a 4.22% yield which will go higher. Might hit 4.5% in the next 30 days or so.
SWEET!!!
Found a new angle for RE purchases:
Make low-ball offers to recently orphaned heirs before anyone else gets to them.
Better than hostile divorces or medical emergencies.
Interestingly, new home sales have rebounded strongly, up 31.5% (+-16.5%) from July a year ago. It doesn’t cover the drop in existing home sales but it makes a huge dent.
I have also notice existing home sale prices are still high. I bought a new home in 2021 and monitor Zillow out of curiosity. New home prices are insane but existing home prices although lower than new homes seem to be unreasonably elevated. They sell both new and used. Not seeing many price reductions. My neighbors home went up for sale for 250k more than I paid for mine 2 years ago, similar in size and features. Would absolutely not pay that myself now but am interested to see if it sells at full ask. As of now I see inflation accelerating not subsiding.
“The median existing-home sales price *climbed* 3.9%”
Sorry, Mish, but that’s NOT a crash.
Believe whatever the hell you want but you might try some reading comprehension coupled with my explanation.
“Prices have not crashed but transactions have. Crashes are rare, but we are in one now, from a transaction perspective.”
And what exactly is the enduring point about transaction crashes vs prices crashes?
It’s all about inflation, Mish, you know this very well. Which one affects inflation and which one doesn’t when the Fed followed an near ZIRP policy for WAY TO LONG resulting in this grotesquely skewed existing / new housing market?
Drum roll please . . . PRICES!!!
The ONLY people who really care about this utterly pointless transaction crash to-date are the realtors. Like most here on MishTalk, I could care less about realtors’ constant cheerleading. It’s fake news just like this article. There’s zero point to what you’re saying. It simply doesn’t matter. It’s just another fluff piece.
What WOULD matter is for you to take this transaction analysis and overlay it with well-informed projections about what will actually cause prices to truly rollover and head south. For example, what percent of homes sold in the last 18 months have been 30YFRM vs some sort of short-term buydown. And based on the current interest rate climate, how much longer do we have until these temporary buy downs start to impact those buyers’ ability to afford their payments. When does this transaction slow down start to have a real impact on residential housing construction to the extent that we start to see layoffs within the industry? In other words, when does the REAL housing crisis arrive?
Or as I’ve said at least a dozen times over the last year, how does all of this illegal immigration affect rental / housing? My God, it’s reported that 10K illegals came across the border in a single 24-hour period. Like seriously, what is this massive influx of people doing to rent, food, fuel, healthcare, education, etc inflation across America? Inquiring minds want to know.
When is someone with some weight going to bring this up as a REAL economic issue?
Probably never but thanks for “stating the obvious”: we’re knee deep into a transaction crash. Woohoo!!! Thanks for that really insightful information. Do us a favor and start making predictions about what lies ahead. Stick your neck out a little, Mish!
Mish – Please. A transaction crash? When has that EVER been the definition of a crash for any market? A market crash is a sudden and substantial (20%+) drop in prices with high transaction volume. Sellers coming on to the market faster than buyers.
Your definition of a crash is, at best, click-bait. At worse, it is deceiving. Really tired of seeing it.
Then leave. You can have whatever definition you want. But I am tired of BS.
A transaction crash to 1979 levels is exactly what happened.
If you call that a non-crash you may as well call it an egg salad sandwich.
Accuse me of posting click-bait once more and you are gone. Better yet, just leave now.
Case Shiller is a flawed measure. The only way for repeat sales to happen quickly enough for them to be relevant is if the house is a flip. And the reason why repeat sales prices are up at all is flippers are investing large sums of money renovating older outdated homes. If I buy a house for $500K, and sink in $100K in renovations, then sell it for $575K, did I make money and prices go up $75K? No, I actually lost $25K, and prices are falling.
You have no clues how Case-Shiller works. Renovations are factored in.
It is the single best measure. Median price does not even tell you the number of rooms or square feet.
You stand corrected.
How are they taking renovations into account? Is there a link that explains it?
Mish, respectfully you are wrong on this. The complete methodology is listed here:
https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-corelogic-cs-home-price-indices.pdf
Case Shiller attempts to reduce the impact of renovations by excluding homes the sell more than once every six months (although many renovations take much longer than this), and “applies smaller weights to homes that appear to have changed in quality or sales that are otherwise not representative of market price trends,” but there is no way this is accurately capturing the renovation work done to many houses prior to sale.
Mish,
For someone with your understanding of economics, is a bit puzzling that there is no mention of the main factor creating Inflation, which Fed has no means of influencing: the war in Ukraine. The American people are paying those people wages and for almost all war effort, several tens billions by now. The only President who had the courage to admit at his time about the Vietnam war being the main factor of inflation, was Kennedy. The Fed knows it and because cannot be political, it masks that by talking about monitoring International conditions. I think you can shed some light on the mechanism by which war produces inflation for the less familiar with how the economy works. So the Fed is in a near impossible dilemma.
Good Lord, the $80 Billion total or whatever (spreads out over many months) we sent to Ukraine is nearly meaningless as a cause of inflation.
Biden’s absurd policies, free money handouts, and the ridiculously named Inflation Reduction act are at the heart of it. Tack on subsidies, tariffs and sanction and you have the full answer. It is you who seems to lack understanding of what’s going on.
https://www.cfr.org/article/how-much-aid-has-us-sent-ukraine-here-are-six-charts
Exactly.
I thought it was the Inflation Reproduction Act.
What about the wars from basically 2001-2022?
Sales can crash all they want, people only care about prices.
realtors are people, too
/sarc
People are not selling their existing home as they are locked in at a low mortgage. So of course existing home sales are down. Makes it hard to tell if housing bubble has popped or not
So to see how housing is doing then perhaps you need to look at new home sales for housing trends.
Krugman is either out to lunch or a liar for the Biden administration.
http://www.321gold.com/editorials/captainewave/captainewave092123.html
Krugman is an idiot.
Both.
Obviously a liar for the Biden Admin, and he is not the only one
A piece of anecdotal evidence of limited value.
A rental property I purchased two years ago for 100k would now sell, per appraisal for 200k. Obviously, I’m happy with my investment. However, I cannot make another.
My monthly payment for this house, with a 3.5% interest rate is a mere 492 and I can rent it for 1200. It’s been hugely profitable for me, even with no price appreciation. I wish I had bought the others that were on the street at the same time this one was.
Now, with an 8% mortgage (investment properties typically have higher interest rates), and a 200k price tag, I’d be paying around 1200 a month for this home that would rent for 1200. This assumes no maintenance costs.
In essence, buying an investment property in my town is a money losing proposition now, and almost nobody is buying. No one is selling either.
The markets are freezing up, but prices are not falling.
Well said. And today it’s likely your property taxes and insurance are way higher so you wouldn’t be breaking even at $1200, you’d be losing money. This is the problem with real estate right now. It’s not necessarily the capital cost of the home, it’s all the ancillary expenses that keep going up like maintenance and HOA fees.
I’m in a similar situation but I have raised the rents this year, what will happen next year is anyone’s guess. There is a new apartment complex going up next to my rental unit so I expect competition will be fierce but then again there has been shortages of housing in the area too.
Taxes are reevaluated every 8 years here in my part of NC. They are revaluating now.
Every penny of that revaluation is going to be passed on to the tenant. I suspect my taxes will go up substantially from 100 a month now, to at least 150 or so. Whatever it will be I’m not worried about it. There’s a severe housing shortage and I will have no problem finding a tenant who will pay the rent.
Also, I have the means to buy three more rentals each with a 25% down payment. However, none of them would be profitable based on rents. As much as rents have increased, the rent would not cover the cost of holding the property.
I have thought about just paying cash for one and not worrying about the interest rate. I’d be profitable then, but not much above money market funds with virtually no risk.
My money is in a CIT MM account earning 5.05% interest virtually risk free with none of the headache of a landlord until the market improves. I suspect many people are doing the same thing.
I was renting for 950 a month in an affluent greater Hartford CT suburb with no crime and I paid in advance for 10 years (two weeks in advance) and no increases. It was sold and i believe a 30 percent investment to improve and update it occurred. Now it is rented for 1700 I was told all of this in the last year. People look smart in real estate due to luck often. I guess my point is it is nice to be lucky too. I rarely called the landlord. I know the fees went up 30 percent too. It is now a bad investment if someone would try to replicate it now. The easy money was made. Game over.
$950? Seems very low.. Studio? 1 Bedr?
What you describe is a reason housing is going to come way down. Your best option right now is to sell the home and invest in risk free t-bills paying 5.25%. Multiply that by 100 million and you have a housing crash.
I have thought of that….but if I sell, I lose the 3.5% mortgage rate, probably for a long time.
I like that interest rate, I like it a lot. I do not believe housing will fall much, since there is a severe housing shortage around where I live. I work as a property manager for a company and have a pretty good pulse on the market here. Because I do not believe the price of a property will fall, I’ll keep this property to remain diversified and keep the excellent interest rate.
I just won’t buy another property until conditions improve.
What makes you so sure the prices will come down? Have you considered the possibility that rents will go up even more with sales prices stabilizing?
Right. This isn’t the GFC. Unlike what George Santayana said: “Those who fail to learn from history are doomed to repeat it”. In the area of economics, it is more accurate to say that those who believe economic history reveals eternal truths are doomed to error.
But where do you move to?
So what should I do?
House cost is $2,000 per month rounded up includes taxes and insurance.
I have my home office(Would pay $1,000 per month elsewhere to have it) 4 bedrooms, C/A/ and fireplace with new roof. getting harder for me to maintain the outside.
200K equity. would love to extract it but around me a decent 2 bedroom with some amenities (my office would be the other) is over 2,000 a month
Age 60. Thinking stay put and maybe try a reverse mortgage in about 5 years.
Dont want to move out of state
If you catch all the trains heading the right direction, you will catch too many trains headed the wrong way.
Basic statistics, To make alpha errors become very small, beta errors must become unacceptably high.
The reverse is also true, a very small beta is achievable only with a very large alpha error.
The other annoying rule is that the statistical power increases as the square root of the number of data points.
Some of the CNBC talking heads were selling off Home Depot and other similar stocks. I am kicking myself for not buying more puts on XHB. The Jan 2024 $55 strikes were selling for $0.12 and now they are at $0.29. Could have doubled my money.
Oh well, I can’t catch all the money trains, sometimes they leave the station without me on board 🙁
Cho……..