Friday wasn’t a good day for US macro data.
In addition to the worst update on services sector activity in two years and the highest read on longer run household inflation expectations in — checks notes — three decades, investors were forced to grapple with what looked like a pretty bad hangover in the resale housing market.
Existing home sales dropped almost 5% in January, NAR said. The annual pace, 4.08 million, was the slowest in months.
As the figure shows, January’s decline counted as the largest since November of 2022, and it snapped a three-month run of gains. Suffice to say we’re back to pondering whether a purported thaw was in fact a false dawn.
There’s no mystery here: People just can’t afford to take the plunge. Regular readers will attest that I began raising questions months ago about a bull case which argued that home sales could recover even if rates stopped falling because Americans have resigned themselves to a “new reality” defined by higher financing costs, particularly if resale supply loosened up a bit.
The problem with that thesis was (and still is) straightforward. You can’t afford what you can’t afford. Just because you’ve given up on the idea that rates might drop materially at some point soon doesn’t thereby mean you’re going to run out and buy a house. As I put it earlier this week, anyone who could afford to buy with rates at 7% and prices at records, has already bought, leaving a pool of potential buyers who by and large can’t make the math work.
On Friday, the NAR’s Lawrence Yun acknowledged the circumstances. “Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Fed,” he said. “When combined with elevated home prices, housing affordability remains a major challenge.”
Yes. Yes a thousand times. Or 394 thousand times. That was the median existing home sale price last month, according to Friday’s release.
As the figure shows, January marked the 19th straight month during which prices rose on a YoY basis.
Although resale supply did increase, it’s just not enough. Or anyway not enough on its own. “[F]or many consumers, both increased inventory and lower mortgage rates are necessary for them to become first-time homeowners,” Yun sighed.
so … is bad news bad now? or, just news … or, does it even matter these days?
We look to be approaching all news is bad news.
I have heard from online sources that there are local real estate markets collapsing in Florida, the Dallas/Fort Worth area, and in parts of Arizona. New home construction is getting the worst of it, as they have overbuilt, and the various incentives they have been offering are no longer working to draw in buyers. There is also some concern that Maryland may see a downturn, as the DOGE continues to slash jobs in DC.
The problem is not just the price of homes and high interest rates, but insurance costs and taxes have also risen sharply. The recent fires in SoCal could potentially push some folks to relocate in Arizona or Texas, but I do not think that would be a very large number or right away either.
If I was a government worker (what are there, 4 million) and had been thinking about moving, I would certainly put a full stop on those plans now. Chaos is not good for commerce, unless your currency is smash and grab.
Government efficiency is being tempered by some on line.
I read the following:
“These firings they’re conducting without following the law will result in hundreds of thousands of former federal employees being owed back pay, plus interest, plus benefits, plus attorneys fees,” “When the bill comes it will be monumental.”
This reminds me if the H man who is not constrained by home prices or financing costs bought a house yet?