Another couple of data points to add to the picture of growing weakness in the housing market.
U.S. existing home sales fell in July for the sixth straight month, the longest streak of declines in more than eight years, as higher mortgage rates and a shortage of homes for sale are cooling this once red-hot market.
Sales of previously owned homes dipped 5.9% in July from the previous month to a seasonally adjusted annual rate of 4.81 million, the National Association of Realtors said Thursday. That was the weakest pace of sales since November 2015, excluding the three-month pandemic-related drop in the spring of 2020. July sales tumbled 20.2% from a year ago.
The drop-off is the latest sign that the formerly booming housing market is stalling out. Home-building is also drying up, and mortgage applications are falling as more buyers keep to the sidelines.
“We are in a housing recession,” said Lawrence Yun, chief economist for the National Association of Realtors…
The median sales price of an existing home fell to $403,800 from a record $413,800 in June, the first decline since January, according to NAR.
While a dip in prices in July isn’t uncommon, economists have been watching for signs of easing price pressures as demand slides. Some expect price declines might arrive by year-end….
Higher borrowing rates have taken much of the air out of the market, economists say. The Federal Reserve has been raising interest rates aggressively to cool inflation, and mortgage rates have climbed in response.
This week, the average 30-year mortgage rate stood at 5.13%, according to housing-finance agency Freddie Mac. That is slightly lower than last week but still well above the 2.86% rate of a year ago. Before this year, mortgage rates hadn’t topped 5% since 2011.
The combination of high prices and rising interest rates has pushed home-buying affordability to its lowest level in decades. People entering the housing market now typically pay 25% of their income on mortgage payments, up from 15% before the pandemic, Mr. Yun said.
One of the most interesting questions is the extent to which valuations will adjust after a long era of ultra-low rates, rates that normally would be expected to distort prices, and, I think, did.
On the other hand, if, in real terms, rates continue to remain low, something that may (ultimately) come to matter if inflation persists, and housing comes to be seen as a store of value, well . . .
And inventories remain low.
On a similar theme, Reuters has details on new single-family homes sales: They fell to 511,000 in July (seasonally-adjusted) from June’s 585,000 (number revised down from 590,000). Expectations for July, according to Reuters, were for sales of 575,000.
One interesting bit of color:
Sales rose in the Northeast, but dove in the West and the Midwest as well as the densely populated South.
Yet more evidence, I reckon (not that it’s needed), that the pandemic effort has cooled off, which can be seen in the overall number of sales, which has declined from 993,000 in January 2021. July’s 511,000 is the lowest total since 2016.
More details in a chart here. Historically, the absolute level is no catastrophe, but the trend is interesting. The underlying shortage of supply, meanwhile, is clearly helping prices. Then again, people can only afford to pay what they can afford to pay, however much they may stretch the meaning of that term.
Assuming a 20% down payment, the change in mortgage rates and home prices just since December amount to a 36% increase in monthly payments on a new 30-year mortgage for the median new home.