Another day, another dour read (or two) on the US housing market.
Pending home sales tumbled in June, data out Wednesday showed, underscoring the fragility of a market which many argue is transitioning from bubble to bust.
The NAR’s index of contract signings fell 8.6% last month, far worse than the 1% decline consensus expected. The range, from two-dozen economists who ventured a guess, was -10% to 0.5%.
June’s decline marked the seventh monthly drop in eight (figure above). More notable, perhaps, was the unadjusted 12-month decline. On a YoY basis, transactions plunged 20% after a 12.3% retreat in May.
The figures punctuated a very poor round of housing numbers and came a day after new home sales data for June showed the annual pace of price appreciation decelerating dramatically amid the slowest annualized pace of buying since April of 2020.
Read more: Canaries In America’s Housing Bubble
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing,” NAR Chief Economist Lawrence Yun said Wednesday.
He went on to suggest that mortgage rates “may be topping or very close to a cyclical high.” If that’s the case, “pending contracts should also begin to stabilize,” Yun added.
Mortgage rates have doubled in a very compressed timeframe, squeezing would-be buyers already struggling to cope with record high prices. The six-month rate of change is virtually unprecedented (figure above).
PulteGroup, which reported earnings on Tuesday, delivered what, by now, was an all too familiar assessment. “While [we] continue to deliver outstanding financial results and maintain a large backlog of sold homes, Federal Reserve actions to raise interest rates to combat inflation, combined with lower consumer confidence and increasing fears of a recession have worked to cool the demand environment,” CEO Ryan Marshal said, adding that “the recent 200bps increase in mortgage rates has impacted affordability.”
According to the NAR, it was 80% more expensive to buy a home last month compared to June of 2019. 25% of buyers who bought a home three years ago couldn’t do so now “because they no longer earn the qualifying income to buy a median-priced home today.” Let that sink in.
Separate data out Wednesday showed mortgage applications fell for a fourth consecutive week.
A key MBA index dropped to the lowest since February of 2000 (figure above).
But who’s counting, right? Well, Joel Kan, for one. He’s counting. “Increased economic uncertainty and prevalent affordability challenges are dissuading households from entering the market, leading to declining purchase activity that is close to lows last seen at the onset of the pandemic,” Kan, the MBA’s Associate Vice President of Economic and Industry Forecasting, remarked.
He flagged slower demand for both new and existing homes. Like the NAR’s Yun, Kan is looking for a peak in financing costs. “A potential silver lining for the housing market is that stabilizing mortgage rates and increases in for-sale inventory may bring some buyers back to the market during the second half of the year,” he said.
We’ll see. We’ll see.
Bezos & Co. are buying single family homes, to rent.
Bezos also feeds you, of course (Whole Foods and Amazon Fresh). Coincidentally, yesterday he put in a $4 billion bid to buy One Medical, so he wants to be a channel for your doctor and all of your medical supplies. The little bald guy wants to be an insidious presence in our lives. He’s quirky that way, I think. And it’s profitable too, of course. The next thing you know he’ll be placing staff in our homes to keep toilet paper stocked and assist us in getting in and out of our baths.
In my city, the lines to get into existing SFR open houses have dried up. Realtors sitting there twiddling thumbs. There’s still plenty of desire to buy, but fewer have the means and others are waiting for lower prices. New home development isn’t much of a factor here.
Meanwhile, INVH rent growth YOY still DD% in 2Q, looks to have accelerated a little from 1Q. Apartment REITs reporting DD% rent YOY for latest month. Good times for institutional landlording.
You can have a planned economy with little freedom or the economic oscillations of capitalistic democracies. I think we in the States are supposed to be the latter and what we are experiencing is what we signed up for.
Demand will be scant through the end of the year as rates stay high and people try to wait out them out. Builders will stop building and the long-term housing shortage will continue unabated.
In a year or two when mortgage rates come back down, all those folks who were waiting on the sideline as well as new buyers that want to settle down will all try to jump back in, but they’ll find that the market has passed them by.
The fed will win the battle against housing prices in the near term, but if new supply dries up now, the fed will lose the housing war.