The existing home sales market is now almost in equilibrium with supply
By NAR: According to the National Association of REALTORS®, existing home sales fell in June, while the average sales price rose for the second month in a row to the highest price on record. All four major U.S. regions posted revenue declines. Year over year, sales declined in the Northeast, Midwest and South, but remained unchanged in the West.
In March, I wrote that monthly existing home sales had peaked and that this would be the case unless mortgage rates fell. So far, that call has proven to be justified. Some existing home sales data from 2024 is similar to 2023. In late 2022 and early 2023, mortgage rates fell more than 1% and purchasing apps had a positive slant that filtered into sales prints. However, mortgage rates shot back up, turning our weekly housing market data negative, and when rates didn’t fall back, it laid the groundwork for a seasonal sales spike in February.
This can change quickly if mortgage interest rates move towards 6% or lower. However, we need to see the labor market weaken to get interest rates to that level.
From NAR: The total housing stock recorded at the end of June was 1.32 million units, up 3.1% from May and 23.4% from a year ago (1.07 million). At the current sales pace, unsold inventory is at 4.1 months’ supply, compared to 3.7 months in May and 3.1 months in June 2023. The last time unsold inventory recorded a four-month supply was May 2020 (4.5 months).
My affordability index model was created for 2020-2024 because this was such a unique period in American history. Inventories had been slowly declining for many years before 2020, so there was the potential for unhealthy home price growth. That’s exactly what happened.
My model was simple: We would be fine with national home prices rising 23% over five years – 4.6% or less per year. Well, that didn’t work out, because in the first two years together we saw a house price growth of 30%. The second variable I added in 2020 was that the housing market would cool if the 10-year rate rose above 1.94%, which is 4% plus the mortgage rate. That didn’t happen in 2020 or 2021 and home prices escalated out of control. My affordability numbers were destroyed and it wasn’t until after March 2022 that the 10-year rate rose above 1.94%, but that was long after home prices had exploded higher. Naturally, demand for housing would collapse.
While inventories are far from normal, affordability is much worse now than in recent history, so prices should cool in the second half of the year, something I discussed in this podcast. So far, my price prediction for 2024 was wrong, because house prices rose too much in the spring. The supply story is better this year, but if interest rates fall in the second half of 2024, it will become more challenging to get the forecast right.
Existing home sales today came in lower than expected, but the positive story is that inventory is growing back to what I consider balanced. Inventory is very seasonal, so we only have a few months of NAR data before it drops seasonally. However, for the housing market to ever return to normal, inventories must rise from record lows and we see this happening without triggering a national housing bubble price crash.
