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Existing Home Sales Dive 7.2 Percent Wiping Out January's Big Month

Mortgage rates are up, sales are down big. Get used to this story.
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Existing home sales courtesy of Trading Economics

Existing home sales courtesy of Trading Economics

Existing-Home Sales Fade 7.2% in February

The National Association of Realtors (NAR) reports Existing-Home Sales Fade 7.2% in February

Key NAR Highlights

  • In February, existing-home sales fell to a seasonally adjusted annual rate of 6.02 million. Sales were down 7.2% from the prior month and 2.4% from one year ago.
  • The inventory of unsold existing homes slightly increased to 870,000 as of the end of February, equivalent to 1.7 months of supply at the current monthly sales pace.
  • The median existing-home sales price rose to $357,300, up 15.0% from one year ago. This marks 120 consecutive months of year-over-year price increases, the longest-running streak on record.

Lawrence Yun Comments

  • "Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases," said Lawrence Yun, NAR's chief economist. "Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate.
  • "Monthly payments have risen by 28% from one year ago – which interestingly is not a part of the consumer price index – and the market remains swift with multiple offers still being recorded on most properties."

Yun is the NAR's chief economist.

30-Year Mortgage Rates

Mortgage rates courtesy of Mortgage News Daily

Mortgage rates courtesy of Mortgage News Daily

30-Year Mortgage Rate Changes

  • 2022-03-18: 4.50%
  • 2022-03-01: 3.90%
  • 2022-02-02: 3.66%
  • 2022-01-03: 3.29%
  • 2021-12-01: 3.18%
  • 2021-11-01: 3.18%

Existing home sales are recorded at closing. New home sales are recorded at signing.

February existing home sales reflect mortgages locked in one to two months ago. With reasonable timing, rates were between 3.0% and 3.25% 

Get Used to Declining Home Sales

"Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate," said Yun.

A rate lock today will be at a whopping 4.50%.

Demand Destruction

When someone buys an existing home, they paint, buy new furniture, fix up the lawn, buy new cabinets, buy new carpet, etc. 

Such purchases will stall. 

Fed's Real Dilemma

Will the Fed strive to steepen the yield curve?

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I do not think so. This was the subject of a friendly 4-way discussion. 

For details please see Diving Into a Seemingly Strong Housing Report and the Fed's Real Dilemma

The above link pertains to housing starts and permits.

The data looked strong but it reflects ability to buy at a 3.0% mortgage rate. 

Now what?

Fed's Dilemma

  • Guess what folks. We are building single family units that hardly anyone can afford.
  • Where is the supply of apartments? Affordable rentals? Less than pre-pandemic!
  • The Fed cannot build homes.
  • The Fed can try to cool demand for homes and home building, but a seemingly strong housing market is one of the few things the Fed has. 

Hawkish Fed? No, This Was a Dovish Fed Meeting

The Fed penciled in 7 rate hikes this year and 4 more next year. Who believes this?

That was my comment in Hawkish Fed? No, This Was a Dovish Fed Meeting

The Fed is trying desperately to thread a needle. If you prefer consider the Fed tiptoe through the tulips.

Actually, an attempt to walk a tightrope in 80 mile-per-hour winds might be more like it.

A Dramatic Yield Curve Transition From a Steep Front to Back End Flatness

One of my readers commented "rate hikes will be transitory". So will QT, assuming it ever gets off the ground in the first place.

QT and a steepening yield curve at the far end (the only place it can occur), would destroy housing.

Arguably, it's already happening even though existing home sales reflect a 3.25% rate, not a 4.50% rate.

For more discussion. please see A Dramatic Yield Curve Transition From a Steep Front to Back End Flatness

This post originated at MishTalk.Com.

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