- by New Deal democrat
Although the government shutdown is long over, the most recent government housing updates have been for October, I.e., two months stale. Thus the NAR’s existing home sales report has temporarily become among our best look at housing sales, prices, and inventorythe housing market.
As per my context all this year, 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. Since September, mortgage rates have been at the bottom of their 3+ year range, and in December existing home sales predictably reacted, breaking out of that range to the upside, at 4.35 million units annualized, the highest number since March 2023:
In the past several years I have been looking for the new and existing homes markets to rebalance. 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 December inventory declined sharply, as it does every year, to 1.18 million, exceeding every December level since 2019, when its level was 1.39 million:
Since inventory was typically in the 1.7 million to 1.9 million range before the pandemic, the chronic shortage still exists, although it is very slowly abating.
For inventory to fully adjust, so must prices. As shown in the below graph, the median price of an existing home rose about 45% between July 2019 and July 2022 and another 5% from there through July of this year, before seasonally declining:
https://tradingeconomics.com/united-states/single-family-home-prices
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:
December 6.0%
January 4.8%
February 3.6%
March 2.7%
April 1.8%
May 1.3%
June 2.0%
July 0.2%
August 2.2%
September 2.1%
October 2.1%
November 1.2%
December 1.4%
While YoY price comparisons have crept up since July, they remain well below their past 12 month peak of 6.0%, so the fair conclusion remains that, if we could seasonally adjust, house prices are softer than they were last spring.
My last report on existing homes sales concluded that “the rebalancing of the [new vs. existing housing] market is a long slow slog. Yesterday’s existing home sales report is another data point of very slow progress towards that rebalancing.” The December report adds evidence to the “green shoots” thesis for sales on top of the housing construction and new home sales data we got earlier this week. But the rebalancing remains a long slog, with the pandemic era low inventory almost totally reversed, but yet far below the 2016-18 levels.
