- by New Deal democrat
To repeat my housing sector mantra for the umpteenth time, mortgage rates lead sales, which in turn lead prices, which finally lead inventory.
And for the last three years, the market for existing homes has been rangebound, first in sales, then in prices, and finally this year in inventory as well, in what I have described several times as a “suboptimal equilibrium,” because the housing market as a whole continues to be unaffordable compared with any time outside of the housing bubble before the pandemic.
That continued in September, in which existing home sales rose a seasonally adjusted +1.5% monthly to 3.99 million annualized from a slightly downwardly revised August. Which continues to be well within its range of between 3.85 - 4.30 annualized for the past three+ years:
With rangebound sales, prices on a YoY basis have been relatively calm as well. These are not seasonally adjusted, so we look at them YoY. On that basis, since February of 2025 there has been no YoY comparison higher than 3.0%. in September the YoY comparison was +1.3%, as the median price of an existing home was $417,500, vs. $412,300 one year ago. Prices did decline -10,200 vs. August on a non-seasonally adjusted basis, as they typically do after midyear:
As noted above, this year the most lagging metric, inventory, has also fallen in line - at least until this month, as the YoY% change in existing home inventories increased to 4.6%, the highest comparison since March. By contrast, last month it was down less than 1%. For context, as recently as last December it was up 7.9% YoY:
Unfortunately the above graph does not show the metric very well, but for the last year on a YoY basis inventory has consistently been about -500,000 less than it was a decade ago. Until this inventory shortage is taken care of, the housing market will continue to be tight, and largely unaffordable for new buyers.
To bring this discussion full circle, here is what mortgage rates (gray, right scale) look like in comparison with sales (blue, left scale):
As I wrote at the outset, mortgage rates lead sales, and with the recent increase in mortgage rates to the 7.50%-7.60% range, I fully expect both existing and new home sales, as well as housing permits and starts, to react to the downside over the next several months. So this recent subpar equilibrium may shortly be broken - unfortunately, to the downside.
