September 21, 2022 | 11:24
The Last Rays of Summer for Existing Home Sales
U.S. existing home sales fell for the seventh straight month, extending the longest stretch since 2013. Now, the decline was expected, but in August, sales of existing homes only slid 0.4% to 4.80 million units annualized, which was less than one-third of the consensus decline but follows a similar beat for starts in the same month. However, that's still the lowest level of activity since 2015 (excluding the pandemic).
The overall report was more mixed than July as some regions saw modest gains, ranging from 1.1% on the West Coast, to 1.3% in the Northeast. On the other hand, sales slid 3.3% in the Midwest and remained unchanged in the South. There was similar dissonance for property types as singles (-0.9%) fell while condos (+4.0%) bounced back after a weak July. Median prices dropped for the second month in a row, but are still up 7.7% compared to a year ago—extending the record streak of year-over-year price increases to 126 months. The more downbeat part of the report was that fewer homeowners put their homes up for sale in August, keeping the months supply at 3.2, which will lengthen the duration of the ongoing price correction. The challenge for housing inventory in the current environment is that many homeowners are reluctant to upgrade or downgrade after locking in low mortgages rates during the pandemic. That puts more pressure on new-home construction to expand supply, but residential construction will also struggle with the Fed likely to hike rates by at least another 150 bps by the end of the year.
Heading into the latest FOMC meeting, mortgage rates have more than doubled since bottoming in 2021, closing in on 6.3% by mid-September. Perhaps part of the reason for the better-than-expected August report is that those same mortgage rates slid below 5.5% in early August after spending most of July above 5.8%. Higher rates will continue to weigh on the housing sector, although at least in August, the share of sales made by first-timers was unchanged at 29%, while investors/2nd home buyers made up 16%, up 2 ppts from July.
All of this was before the Fed is expected to raise rates by 75 bps at the latest FOMC meeting, so expect the autumn to bring less sanguine news on existing home sales.