Pending US home sales receded only slightly in July, figures out Wednesday showed.
The 1% dip compared favorably to the 2.6% decline consensus expected, and was nowhere near the most pessimistic guess from two-dozen economists.
You can thank lower mortgage rates for the “very modest” (as the NAR put it) nature of the drop. Rates are nearly 70bps below 2022’s highs, despite being almost double levels seen in January.
Notwithstanding the “beat,” July’s drop still counted as the eighth in nine months (figure above).
Wednesday’s release followed a very poor read on new home sales, which plunged almost 13% last month, the latest in a spate of unfortunate readings, including an eighth consecutive decline in home builder sentiment, a fifth decrease in single-family starts and a sixth straight drop in existing home sales.
“In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” NAR Chief Economist Lawrence Yun said Wednesday, noting that inventories “are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity.”
After the bell on Tuesday, Toll Brothers reported a dramatic decline in purchase contracts, which fell 60% from last year. “America’s luxury home builder,” as the company proudly describes itself, said contracted homes were 1,266 in fiscal Q3 (figure below). Analysts expected 2,568. The average price per unit was $1.3 million, up sharply from $944,700 last year.
“As our third quarter progressed, we saw a significant decline in demand as the combined impact of sharply rising mortgage rates, higher home prices, stock market volatility and macroeconomic uncertainty caused many prospective buyers to step to the sidelines,” CEO Doug Yearley said. Trends improved in August. The value of the builder’s backlog grew 19% YoY during the quarter, but the number of homes in the backlog rose just 1%.
The relatively benign read on contract signings for July offered a small reprieve from the uninterrupted string of foreboding data which, alongside evidence of proliferating price cuts and seller concessions, uniformly suggests the US housing market is in a recession, even if the broader economy isn’t. But on a 12-month basis, contract signings declined by 19% and fell double-digits in every region.
In June, an NAR gauge of housing affordability fell to the lowest since 1989. The monthly mortgage payment on a “typical home” (so, not a Toll Brothers home) was 54% higher versus last year.
Speaking to analysts on the company’s earnings call, Toll’s Yearley said the builder “recognize[s] it is certainly more of a buyer’s market.” Toll, he said, “will act accordingly.”
