The good news is, existing home sales in the US actually managed to beat estimates for September in data released on Thursday.
The bad news is, a beat in this case still left housing market observers staring at the slowest pace in almost 13 years.
At 3.96 million, the annual rate exceeded the 3.89 million consensus, but nevertheless counted as a fourth consecutive monthly decline.
Sales have fallen in 18 of the last 20 months.
You know the story. Anyone who bought a home in 2020 or 2021 got a great rate, and anyone who didn’t refinance during that period was an idiot. Although America is full of those (idiots), it’s safe to say a lot of homeowners availed themselves of a once-in-a-lifetime opportunity.
Now, when the market desperately needs supply, there is none. Because nobody is going to trade a two- or three- (or four- or five-, for that matter) handle rate for a seven-handle, let alone an eight-handle, no matter how much they might be able to get for their current property and no matter how badly they may want to trade up.
And, so, there’s a dearth of resale inventory, and that’s underpinning prices to the chagrin of would-be buyers already squeezed by the highest mortgage rates in 23 years.
Note: This is an example of how higher rates can actually contribute to inflation, via constrained supply. That dynamic isn’t limited to housing.
The median existing-home sales price rose nearly 3% YoY in September, to $394,300. It was the third straight month of YoY price increases.
Suffice to say the price reprieve was both shallow and fleeting.
Although total inventory rose from August, it was nevertheless down more than 8% from September of 2022.
NAR Chief Economist Lawrence Yun described a “pressing need for more supply.” “The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains,” he said.
With all due respect, job gains aren’t weakening.
I am trying to think through the follow-on consequences if existing house sales are low for a few years due to persistent high rates.
Bad for RE brokers, title insurers, and flippers. Bad for property tax revenues in some states. Bad for renters (if drives rent inflation). On balance, bad for holders of mortgage debt (duration extends, capital tied up). More bad than good for home improvement, furnishings, remodeling contractors. Maybe good for homeowners (if drives price inflation). Good for owners of rental SFR/MFD, homebuilders, MFD developers, construction. Anything else?
What I’m getting at is, if existing house sales stay at 4MM or even lower – is that on net a bad thing, or not?
Yeah, this is one of the biggest market puzzles for me. It seems pretty clear that we are experiencing a significant dislocation in the housing market, which one would think would create a major whiplash effect when conditions (i.e. rates) change. If that’s true what would happen to the housing market if rates dropped back to 0 tomorrow?
I know it depends on what caused that to happen, but you’ll all just have to humor me. I’m guessing someone will end up guessing correctly and making a boatload of money and that person won’t be me. I’d feel safer in long-term bonds knowing that those almost certainly have to go up in the scenario above barring the complete collapse of civilization.
Current economic theory is that increasing fed rates will stop inflation. It’s just theory. There must be some correlation between the rising fed rate and the lowering of inflation to support the theory. The old theory (Great Depression era) was that increasing rates would stimulate the economy. Where is the correlation to support these theories? There must be other variable(s) that are causing inflation (like wars both real and economic). Wouldn’t it be ironic if Russia started a war and the opposing developed nations strangled their own economies in response?
Well, in recent experience rising (falling) inflation has indeed roughly correlated with falling (rising) interest rates.
However, at the same time we had the pandemic (and in the US, enormous fiscal stimulus), so it is hard to draw causation concussions from that correlation.
The Fed only has one main tool: interest rates (short via FF rate, long via QE/QT). Whether inflation be a nail or a screw, the Fed was going to use its hammer.
I think (have thought) that hammer is now put away. The economy and markets are going to price-discover. Rather than guessing what the Fed does next (usually not too hard) investors have to guess what price gets discovered (a lot harder). Uncertainty is high. Investors mocked the Fed for going data-dependent as code for “they don’t know what will happen”; now we’re finding out, neither do we.
“We simply must breed more mice, it is absolutely critical for the economy” says John, 12, a cat from Crowley.