I began a post yesterday with the comment:
The signs of a slowdown in the housing market are beginning to pile up.
I ended it with the following bold statement:
It’s going to be worth watching some of the data in the next few months.
And so here we are today.
Sales of previously owned homes in June fell 5.4% from May [the fifth consecutive month], according to a monthly report from the National Association of Realtors. . . .
The median price of an existing home sold in June set yet another record at $416,000, an increase of 13.4% year over year. . . . Sales were 14.2% lower compared with June 2021.
This is the slowest sales pace since the same month in 2020, when sales dropped very briefly at the start of the Covid pandemic. Outside of that, it is the slowest pace since January 2019, and below the annual 2019 total, pre-pandemic.
These numbers are based on home closings, so the contracts were likely signed in April and May, before the average rate on the 30-year fixed mortgage shot above 6%. . . .
There were 1.26 million homes for sales at the end of June. That is an increase of 2.4% from the previous June, and the first year-over-year gain in three years. At the current sales pace, inventory now stands at a three-month supply. That is still considered low, but improving. Supply is increasing both because more sellers are trying to take advantage of perhaps the last of the red-hot, pandemic-induced housing boom, and because homes are now sitting on the market longer. . . .
While sales are falling, the market is still incredibly fast. The average time a home spent on the market was 14 days, a record low.
“This is a head-scratching number, given slower sales,” said Yun. “People are trying to take advantage of their interest rate lock. That may explain why the days on the market are so swift.” . . .
One interesting sign of disquiet:
Almost 15% of home-purchase agreements that were pending in June fell through, the highest level since April 2020, when the pandemic disrupted the market, according to real-estate brokerage Redfin Corp.
“We have a lot of people that are just sitting on the sidelines waiting to see what happens with interest rates and the overall economy,” said Phil Mount, a real-estate agent in Boise, Idaho. “People aren’t buying right now because they’re nervous.”
Also worth noting (via the Wall Street Journal):
In a separate report Wednesday, the Mortgage Bankers Association said mortgage applications fell a seasonally adjusted 6.3% in the week ended July 15 from the prior week, the third straight drop.
Mortgage applications are now at their lowest level in 22 years.
Put all these things together, and they reinforce the impression that home prices look fairly likely to ease, rather than merely remain stagnant. Whether “ease” turns out to be a euphemism remains to be seen, but the combination of a record (median) home price and falling sales does not seem to be one that can endure for long.
The housing market does not, as we were most painfully reminded during the financial crisis, operate in isolation from the broader economy.
The WSJ:
Following Wednesday’s home sales data, Goldman Sachs economists lowered their forecast for second-quarter economic growth by 0.1 percentage point to a 0.5% rate.
And if house prices start falling, the (negative) wealth effect will add to the one that we ought to be seeing from the weaker stock market.
Those second-quarter GDP numbers (due July 28) are going to be interesting. If we take the traditional definition (two consecutive quarterly GDP declines), are we already in a recession or not (see the numbers coming out of Atlanta)?