- by New Deal democrat
The housing market, for all of its economic importance, tends to move as slow as molasses. This is especially true as to prices, where sellers are loathe to realize a loss, even when compared to hypothetical gains they could have had by selling earlier.
The pandemic, of course, through the entire market out of whack, since there was a period of time that it was for all intents and purposes shut down. It is only now rebalancing.
After the Fed began hiking rates in 2022, mortgage rates also rapidly rose from 3% to the 6%-7% range, where they have remained ever since. Since sales follow mortgage interest rates, existing home sales rapidly declined to 4.0 million annualized, and have remained in that range, generally +/-0.20 million for the past 3.5+ years:
In July, the rangebound behavior continued, with sales of 4.01 Million annualized (blue, right scale). Note that new home sales (gray, left scale) similarly declined and have similarly stabilized in the 625,000-725,000 annualized range.
The trend I have been looking for in the past several years is the rebalancing of the new and existing homes markets. Existing home inventory has been removed from the market for over 10 years (likely due in part to absentee rental owners buying increasing chunks of inventory), and really accelerated during the pandemic. This caused an acute shortage of houses for sale, which in turn led to bidding wars among buyers and a spike in prices.
A rebalancing of the market more than anything would require an increase in inventory at least to pre-COVID levels, and a deceleration of price increases, or even outright decreases. Which means that the level of sales themselves was far less important than what the median price for an existing home and inventory are telling us about the ongoing rebalancing of the housing market.
The secular decline in inventory reached a nadir in 2022. This series is not seasonally adjusted, so it must be looked at YoY. In July inventory increased by only 1,000, but more importantly, inventory finally exceeded its 2020 level for the same month, up 5,000:
Still, pre-2020, inventory was typically in the 1.7 million to 1.9 million range, which means that although it is lessening the chronic shortage still exists.
But even more important is what happened, and has continued to happen, with prices. As shown in the below graph, the average price of a new home (gray, left scale, not seasonally adjusted) rose almost 40% between June 2019 and June 2022 before slowly declining about -7% through June 2025. Meanwhile, the average price of an existing home (blue, right scale, not seasonally adjusted) rose about 45% between July 2019 and July 2022 and another 5% through July of this year, as was reported yesterday:
With seasonal adjustments are not made, my rule of thumb is that a peak (or trough) occurs when the YoY% change is less than half of its maximum change in the past 12 months. Here are the comparisons in the past 12 months:
July 4.2%
August 3.1%
September 2.9%
October 4.0%
November 4.7%
December 6.0%
January 4.8%
February 3.6%
March 2.7%
April 1.8%
May 1.3%
June 2.0%
As of yesterday’s report for July, the YoY% change in average prices was only 0.2% higher than one year ago.
Last month I concluded with “I still expect moderation in price increases and more importantly, for inventories finally to exceed their 2020 levels.”
This month, both happened. Inventory finally exceeded 2020 levels, and further, it is safe to say that if we had seasonally adjusted measurements, we could conclude that prices for existing homes peaked sometime this spring, and have started to decline.
Even so, prices of existing homes are still up about 50% from 2019 levels, vs. new single family homes, which are up less than 30%. Which means that while the July existing home sales report confirmed the ongoing rebalancing of the market, there is still some distance to go.
