Existing Home Sales Fall Again. US Homeowners Seen ‘Locked In’

Existing home sales in the US came in slightly better than expected for August, while months’ supply was unchanged, data out Wednesday showed.

The mostly uninspired read on America’s teetering housing market came on the heels of another dour homebuilder sentiment report and mixed new construction data.

Sales of previously owned homes fell 0.4% last month, the NAR said. The 4.8 million annual rate was the slowest since the pandemic plunge, although the more moderate monthly decline could suggest the market stabilized amid what proved to be a fleeting drop in mortgage rates.

Prior to August’s minuscule drop, existing home sales notched six consecutive sizable monthly declines (figure above).

On a YoY basis, sales were almost 20% lower, underscoring the extent to which affordability concerns continue to weigh on activity.

“The housing sector is the most sensitive to and experiences the most immediate impacts from the Fed’s interest rate policy changes,” NAR Chief Economist Lawrence Yun said Wednesday, blaming “softness” in home sales on “escalating mortgage rates,” which rose above 6% last week (figure below).

Nevertheless, Yun described homeowners as “doing well.” Distressed property sales are “near nonexistent,” he remarked, while noting that home prices are “still higher than a year ago.”

That latter assessment, while encouraging, makes for a stark juxtaposition with the sort of color that typically accompanied housing market data earlier this year, when prices were still rising at an inexorable annual pace. Although prices rose in all regions last month, the 12-month rate was “just” 7.7%. To be sure, that’s a healthy rate of price appreciation, but it pales in comparison to the sort of eye-popping gains seen across national price indexes when the boom peaked amid the onset of the most aggressive Fed tightening campaign in a generation.

The median existing home price was $389,500 last month. Although August marked the 126th straight YoY increase, it also counted as the second consecutive MoM decrease. Yun cited “the usual seasonal trend,” but prices are now almost 6% off record highs hit in June. Properties stayed on the market longer last month, but more than three quarters still sold in less than 30 days.

One dynamic worth watching going forward is homeowner “lock-ins.” With mortgage rates double what they were last year, Americans are unlikely to sell their current home unless they intend to rent or buy a new one in cash. That may mean that inventories remain artificially suppressed, which in turn lends support to what might otherwise be rapidly falling prices.

Yun alluded to that dynamic on Wednesday. “Inventory will remain tight in the coming months and even for the next couple of years,” he said. “Some homeowners are unwilling to trade up or trade down after locking in historically-low mortgage rates in recent years, increasing the need for more new-home construction to boost supply.”


 

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7 thoughts on “Existing Home Sales Fall Again. US Homeowners Seen ‘Locked In’

  1. This goes back to the Fed winning the battle, but losing the war with regard to housing prices. There might be an oversupply of new homes for the next several months, but once the houses that are already started are completed, new housing supply will likely drop quickly. Add on top of that the dynamic above where homeowners are locked into their house due to higher rates and we might see overall supply dry up over the next year. All the while, the list of people waiting on the sideline will continue to grow. Guess what’ll happen when rates eventually come back down?

  2. They same “tight” supply argument was made in 2007 and we all know how that turned out. Beware “industry professionals” selling the narrative that everything will always be fine in their industry.

    1. Millennials (26-41) accounted for 43% of homebuyers in 2022. Up from 37% in 2021. By most reports, there are still many more Millennials who want to purchase a home, who have not yet done so. And Gen Z (18-25) is entering their home buying years – they will be forced to buy a “fixer upper”.
      Home ownership is still listed as the top American Dream- ahead of retiring early (FIRE), successful career or having children.
      Boomers will help their Millennial/Gen Z family members, where possible.
      Therefore, as an example, I don’t think San Diego home prices will decline nearly as much as in central Illinois. Desirable second home communities (where one can rent out a property when not using it) will continue to do well- as a rental property should be a great investment during inflationary times and even during a “mild” recession.

  3. I like higher interest rates, but that is because I invest in debt, much of it invested in BDCs.

    I even have a HECM reverse mortgage. The current credit line this month is $346,423 and I only owe $96 on the mortgage. The annual interest rate anniversary date is soon approaching in one week, and I’m currently looking at:

    1-year LIBOR of 4.699943% + Margin (constant) 2.875% + MIP (constant) 1.25% = Annual rate of 8.82443%, which will accrue $31,837 in additional credit for the next year.

    We haven’t used any of the credit line yet, and don’t anticipate using it. However, should we experience another financial crisis like 2007-2008, I will most assuredly borrow every last penny of it and go all in on stocks.

    1. Have your tax professional tell you what will happen to your taxes and the status of the home as a residence from your perspective. I believe that once you make it a rental, it stays a rental for the IRS.

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