US ‘Housing Recession’ Confirmed. Just Not By Prices

Existing home sales fell more than expected in the US last month, as affordability concerns continued to weigh on buyer psychology.

July’s 5.9% drop from June marked the sixth consecutive monthly decline (figure below).

The 4.81 million annual rate was the slowest in more than two years. Notably, the pace is now well below that observed prior to the pandemic.

On a YoY basis, sales plunged more than 20%. Every major region in the country logged declines on both a MoM and 12-month basis.

Thursday’s update came on the heels of data showing a fifth straight monthly decline in single-family housing starts. Separate figures out this week showed builder sentiment deteriorated for an eighth consecutive month in August, prompting the NAHB to declare a US “housing recession.”

NAR Chief Economist Lawrence Yun echoed that characterization. “We’re witnessing a housing recession in terms of declining home sales and home building,” he said Thursday, in color accompanying the existing home sales report. “It’s not a recession in home prices,” he added. (Not yet, anyway.)

The rate of annual price appreciation for the median existing home was 10.8% last month. Prices increased in all regions. While the double-digit increase sounds impressive, it pales in comparison to the hottest YoY rates observed earlier this year. On a MoM basis, prices fell.

Yun said the sales slump “reflects the impact of the mortgage rate peak of 6% in early June.” Since then, rates have come down materially. Freddie Mac said Thursday that the average 30-year rate dropped to 5.13% last week.

Rates briefly dipped below 5% earlier this month (figure above). “Home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers,” Yun added.

Inventories rose in July from June. Months’ supply was 3.3, up markedly from 2.6 during the same month last year.

Cancelations are piling up. According to Redfin, more than 60,000 agreements were nixed in July, equating to 16% of homes that went under contract last month. The comparable figure from a year ago was less than 13%. “With competition declining, the house hunters who are still in the market are enjoying newfound bargaining power — a stark contrast from last year, when they often had to pull out every stop in order to win,” Redfin said.

A Redfin real estate agent in Jacksonville noted that with homes “sitting on the market longer now, buyers realize they have more options and more room to negotiate,” so they’re increasingly prone to “asking for repairs, concessions and contingencies.” If sellers refuse, buyers are “backing out and moving on because they’re confident they can find something better,” the same agent said.

Still, the market is tight. And that should continue to support prices. Some 40% of existing homes are going for full-list, according to the NAR.

Thursday’s data showed the typical property was on the market for just 14 days in July, the fewest since NAR started tracking the figure more than a decade ago.