Existing-home sales slipped in July as rising mortgage rates make housing prices the least affordable ever.
The National Association of Realtors® NAR® reports Existing-Home Sales Slipped 2.2% in July
Highlights
- Existing-home sales fell 2.2% in July to a seasonally adjusted annual rate of 4.07 million. Sales receded 16.6% from one year ago.
- The median existing-home sales price rose 1.9% from one year ago to $406,700. It was the fourth time the monthly median sales price eclipsed $400,000, joining June 2023 ($410,000), June 2022 ($413,800) and May 2022 ($408,600).
- The inventory of unsold existing homes increased 3.7% from the previous month to 1.11 million at the end of July, or the equivalent of 3.3 months’ supply at the current monthly sales pace.
- First-time buyers were responsible for 30% of sales in July, up from 27% in June and 29% in July 2022.
- All-cash sales accounted for 26% of transactions in July, identical to June but up from 24% in July 2022.
Existing Home Sales Seasonally Adjusted
Existing-Home Sales Month’s Supply
Existing Home Sales Long Term
Transaction Crash
Existing home sales have crashed to a level seen in the mid 1990s. 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?
The Housing Bubble Is Expanding Again
Chart Notes
- The latest Case-Shiller home price indexes is for May. It represents repeat sales of the same house in roughly a March-April 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.
For discussion, please see The Housing Bubble, as Measured by Case-Shiller, Is Expanding Again
How Much More Will Homebuilders Have to Reduce Prices to Increase Sales?
Existing homes sales prices remain stubbornly high as measured by Case-Shiller repeat sales of the same home.
In contrast, homebuilders have passed on lumber price discounts, offer interest rate buydowns, and now build smaller homes.
Buyers hit a brick wall on price with a peak of $496,800 in October of 2022. Median price has fallen 16.4 percent since then.
For discussion, please see How Much More Will Homebuilders Have to Reduce Prices to Increase Sales?
Mortgage Rates Are the Highest in 21 Years, What That Means in Pictures
On August 18 I noted Mortgage Rates Are the Highest in 21 Years, What That Means in Pictures
Case-Shiller Mortgage Rate Example
On August 18 I noted Mortgage Rates Are the Highest in 21 Years, What That Means in Pictures
Today, I see mortgage rates jumped again. They are now 7.49 percent according to Mortgage News Daily, up from 7.37 percent on the 18th, in the image above.
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.
New home sales have a floor, builders won’t build if expecting a loss. Current prices have already fallen more than previous declines, imo prices are near a floor. Likely builders will shift from smaller homes to big ones to appeal to those able to pay cash.
Existing sales don’t have a floor, at least some sellers have to move and/or sell.
It would be interesting to see what is happening to prices/sales in upper quintile of the market in pricier neighborhoods.
All are very interesting perspectives.
There’s alot of variables to consider here, it’s not as simple as most think
Covid has changed a few dynamics in our society, high density/inner city living, WFH (work from home) mainly.
Yes, high rates has curbed the normal cyclical real estate market. Sellers are holding for longer, the normal 7-10 yr cycle has been stretched to 12-14 yrs.
But, the higher rates have also pressured would be buyers into renting longer.
* 40% of all homes in America are mortgage free.
* Of all mortgaged homes, 75% are below 5%, I believe its 60% are below 4%.
Prices did need to soften after the hysteria of 2022, it was beyond INSANE. I could sell the family doghouse and get multiple offers.
We’ve needed prices to plateau for a couple years now and just settle sideways for a few cycles,to just absorb the appreciation.
I’ve been investing in real estate, and a real estate agent serving WA.and AZ for 14 years.now, and if I had a .05 nickle everytime somebody told me there waiting for a crash, I’d be richer than Warren Buffet.
Truth is, I’ve had clients buy a home to where it curdled my stomach, thinking they’ll never.get.out from under it, only to see now theyve.got $100, $200, $300k equity positions in them.
I watch Black Knight, NAR, Csse.Schiller, Mish, and of course my hyper local community activity in Phoenix and Seattle markets.
Would I buy now? Only if I had to
Would I rent now? Only if I had to
Would I sell now? Only if I had to
You see the dilemma??
“ In contrast, homebuilders have passed on lumber price discounts, offer interest rate buydowns, and now build smaller homes.”
Is there data to show that builders are building smaller homes.
I see lots of bigger houses going up, but not many small houses.
I also see a lot of build-to-rent condos being built.
“If building and household formation were to continue at their current pace — growing household formation combined with slowing housing starts — the gap would never close.”
https://www.cnn.com/2023/03/08/homes/housing-shortage/index.html
There’s a housing shortage. How can prices come down?
They could come down if the area becomes crime filled and people stop spending $ to keep their homes looking nice.
The long term trend is for housing demand to stay flat for the next few decades, while builders keep building. Because that’s what they do.
People are retiring as fast as people are entering the work force. Many of them own multiple homes and will sell their primary residence and move into their vacation home. Many will move in with relatives. Many will move outside the US because of lower cost of living.
We’ve had several decades of increasing housing demand that is coming to an end. And when it does, it will get very ugly. There are a lot of speculators who will become sellers instead of buyers. Which feeds on itself, because once valuations start dropping and rents start going down, many will be forced to sell.
I get your thinking. Some housing may get recirculated, but the next generation will do the same hoarding, so i don’t see a large impact.
The problem is that population is growing pretty rapidly with all the immigration, like 4%. Even though projections have it declining to a 2.4% rate out a few decades, I think the supply will still need to increase. Freddie Mac puts out data on this. The annual shortfall of home building is likely around 2.5 million units per year, probably more.
Existing home sale look like a perfect inverse correlation with interest rates. Now that rates are going up, existing home sales should continue heading down. This housing season was a bust.
The regional banks were downgraded again. Some are heavyweights in commercial loans. Not all commercial loans are equal. Multi families and industrial are better SF office buildings. Many regions are immune to SF and NYC inflammation. $1T wall street wealth left NYC.
There are 17,000 small cities under 25,000 population out of 20K total all under C/S
radar.
“Other” regions benefit from SF and NYC inflammation. They sucked SF and NYC wealth.
Reply to Micheal Engel
“Many regions are immune to SF and NYC inflammation. $1T wall street wealth left NYC.”
“Other” regions benefit from SF and NYC inflammation. They sucked SF and NYC wealth.”
Rising interest rates have been like a much needed Economic Preparation H Suppository to combat the down sides of Economic Inflammation. Notice the word Inflation is derived from the root word Inflammation.
This is what you get when you create a world of articifially cheap money because of fraudulent and artificially low interestrates. A financial industry gone peak-greed. Or should I say, a de-regulated financial industry gone peak greed.
No matter the actual reason for this frozen propertymarket, it all started with deregulation, an experiment with low interestrates that benefitted a tiny % of the population while the rest are just indentured servants.
You said it, Mish. Housing has never been this unaffordable or otherwise said, the people have never been more indebted. This is probably by design, as the agenda seems to be depopulation, less consumption, less free choice.
What a messed up world we have right now. Everything has been in a bubble, from luxury watches to cars to flipping houses.
And it would benefit society if these bubbles deflate. Whether controlled or with a bang, I don’t care, as long as this insanity stops.
Popping the Everything Bubble across all asset classes would ruin all the big players that over borrowed on leverage again and fed this FOMO frenzy. We already know they get a moral hazard bailout, while everyone else faces consequences….
I don’t think it’s by design.
Home prices exploding coincide with the free money from Covid. If there was no Covid, I doubt home prices would have exploded as they did since the combination of free money and mortgage forbearance turbo charged housing and now in 2023 everything else via runaway inflation.
Years from now, when people look back on what happened in 2020, locking the country down and handing out trillions in free money for no work being done is going to be considered one of the worst mistakes of all time. On par with what happened during the great depression.
Maybe you should post a long term chart of the existing home inventory? Makes the explanation of sales a lot easier. Current levels are roughly 1/4 of the peak housing madness in 2008 and 1/2 the level of 1999. Inventory has been in decline for well over a decade.
“First-time buyers were responsible for 30% of sales in July”
That # seems extraordinarily high, and the reason is that according to the government you may have owned many homes over your lifetime, but you are still considered a first time buyer if you have not owned one in the last 3 years. I would wager only about 15% of buyers have never owned a home
Actually it makes sense.
Remember people with 3% mortgages aren’t moving because they don’t want or can’t afford a 7+% mortgage. So pretty much the only buyers are ones who have to (loss of job, divorce etc) or first time buyers.
These companies that overpaid and gobbled up houses during the pandemic will be the biggest losers. Seeing ones they purchased around here sitting on the market for over a year. They have been dropping their prices but it’s still not enough.
Great analysis Mish. Thanks
We’re going to get to see what happens when an unstoppable force (rising interest rates) meets an immovable object (stubborn sellers). It is theorized that this could cause a giant black hole that sucks everything into it.
Got T-Bills?
Doesn’t a market crash imply a major decline in asset prices?
Overall, there is a supply problem. But builders are unlikely to build on speculation now because 1) they have been burned in the past and 2) banks are not lending for it. Banks continue lending for pre-sold home building.
Buying a house continues to be the right move for long term wealth building and minimizing housing costs. So it adds to wealth transfer at death and helps bolster long term household cash flow after a few years of being house-poor.
I would call it a new normal, not a crash. By the first of 2024 it will be baked into the basis and transactions should grow 2%-3% per year. Just one man’s opinion.
“it is a supply problem”
Unless you have scarcity or COVID like situation it is more likely a demand problem. Maybe no one wants to be saddled with a 7.5% mortgage
Historically you see a decline in transactions before a drop in prices. I think many are shocked to discover how much less affordable their houses are at what they paid and hence how much less valuable they are. Over time, people have to move and will take what they can get. Which drives down the value of comparables. Which drives down the amount banks are willing to lend.
“ Historically you see a decline in transactions before a drop in prices.”
It makes a difference whether decline in transactions is due to lack of supply vs lack of demand.
A decline in transactions due to lack of demand will decrease, but if due to lack of supply then prices will increase.
“Doesn’t a market crash imply a major decline in asset prices?”
No, you must not have read his article and are completely uninformed in terms of the drivers of the current housing market.
“But builders are unlikely to build on speculation now because”
At this time, this is patently false. The market has largely shift to new construction, because builders are sitting on very large, upwards of 40% or more, in gross margins. They have the money to do rate buy downs for 2-3 years.
“Buying a house continues to be the right move for long term wealth building and minimizing housing costs.”
You must be a realtor. Now is not a great time to buy a house. Housing is easily 25-30% overvalued. We’re all just waiting on the shoe to drop in terms of a real recession. No prediction on my part, but it’s not 5 years down the road.
Really? Not uninformed. I don’t make patently false statements. I am not a realtor.
Why throw stones and drag this blog down? The remainder of your comments don’t make any sense.