- by New Deal democrat
It has been four years since the Fed started aggressively raising interest rates, causing mortgage rates to rise similarly. It has been over four years since home sales peaked, and also about four years since the median price of a new home peaked. Finally, it has also been four years since the YoY% increase in median house prices peaked.
In other words, the effects of those interest rate increases have been baked in the cake. It no longer makes sense to forecast based on those price and interest rate hikes of four years ago. To the contrary, as I wrote last month in my summary of that existing home sales report:
“[S]ince the pandemic the dynamics that have been more important have been prices and inventory. Because during the pandemic prices skyrocketed, and inventory cratered. It has been a long, slow arduous process of rebalancing since then…. This year the housing market has appeared to reach a sub-optimal post-COVID equilibrium, with sideways sales and prices, and at best slowly increasing inventory.”
This morning’s report on existing home sales for June confirmed that message: there is a new equilibrium, with sales, prices, and inventory all but flat.
First, to the numbers: existing home sales in June declined -2.4% for the month to 4.09 million, and well within its range of between 3.85 - 4.30 annualized for the past three+ years:
On a YoY basis, sales were up 2.8%.
This is similar to total housing permits, which have varied between 1.4 million to 1.6 million annualized for the past three+ years, and even the more volatile new home sales, which have varied between 575,000-750,000 during that same period:
On a YoY basis, they are down -0.4% and -6.8% YoY.
The sideways story is the same for median prices. The median existing home price is up only 1.8% YoY (the NAR does not seasonally adjust this metric, so YoY is the only valid way to measure:
Since February of last year, there has been no YoY comparison higher than 3.0%. Again, this is similar to both Case Shiller (blue) and FHFA (red) repeat home sales indexes and the median price of new homes (gold), which are up only 0.8%, 2.0%, and 0.7% YoY:
This year the most lagging metric, inventory, has also fallen in line. In June, the YoY% change in existing home inventories was only 1.3%. By contrast, as recently as last December it was up 7.9% YoY, and in March was up 4.5% YoY:
Again, we see the exact same flatness in YoY new home inventories (blue), down -1.4%, the active listing count of homes for sale nationwide (red), up 1.9%, and the new listing count (gold), up 2.4%:
Finally, I would be reimiss if I did not show how this is all downstream of mortgage rates, which have trended sideways between 6% and 7% for almost the entirety of the last 3.5+ years:
The housing market has reached a new, suboptimal equilibrium in sales, construction, prices, and inventory. Until some new positive or negative shock occurs (like a surprise new Fed hiking regimen), expect little change in this important leading sector of the economy, which is needless to say neutral for forecasting purposes.
