Existing Home Sales

July 23, 2024

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Existing home sales plunged 5.4% in June to 3,890 thousand after having declined 0.7% in May.  In fact, this is the fourth consecutive decline as the combination of near 7.0% mortgage rates, steadily rising prices, and a shortage of homes available for sale is taking its toll.

Lawrence Yun, NAR chief economist said that,“We’re seeing a slow shift from a seller’s market to a buyer’s market.  Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis.”  He add, “Even as the median home price reached a new record high, further large accelerations are unlikely,  Supply and demand dynamics are nearing a balanced market condition. The months supply of inventory reached its highest level in more than four years.”

Mortgage rates have climbed from 3.1% at the end of 2021 to 6.8%.  With the pace of economic activity likely to slow somewhat in the second half of the year and inflation gradually subsiding, mortgage rates may decline to 6.6% by the end of the year.

The average home sat on the market for 22 days in June which is a very short period of time.  It used to be that homes would sit on the market for 3 months or so.  That is no longer the case.  Despite the extraordinarily slow pace of sales, properly priced homes continue to sell quickly.

As has been the case for a long time, there are very few homes available for sale.   However, that seems to be changing.  Inventory rose 0.4 month in June months to 4.1 months which is well short of the 5.0 month supply that is required to balance the demand for and supply of homes, it is the highest reading for this measure of inventory since May 2020.  The actual number of homes available has been steadily rising in recent months and has increased 23.4% in the past year.  Eventually it will get back to the desired 5.0 month supply which is the point at where demand is roughly in line with supply, but it may not reach that mark prior to yearend.

The shortage of homes available for sale is causing prices to rise.  Home prices rose 2.3% in June fo $426,900 after climbing 2.6% in May, 3.5% in April, and 2.4% in March .  The year-over-year change is now an increase of  4.1% but, more importantly, the rate of increase has been far more rapid at 23.8% in the first six months of this year.  If that continues the shelter component is going to re-accelerate and boost inflation along with it.

Housing affordability has dropped from where it was at the end of 2021 as home prices have risen sharply and mortgage rates have climbed to 6.8%.   Housing affordability is currently at 93.1 which means that potential home buyers had 6.9% less income than required to purchase a median-priced home.  Many first time home buyers have been priced out of the market.  But if mortgage rates decline a bit later in the year, job gains boost consumer income,  and home prices are fairly steady, housing affordability should climb slightly and the median-income earning family should have at least enough income to  purchase a median-priced home by yearend.

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Given all of the above we expect existing home sales to rise about 6.5% in 2024.

We expect GDP to rise 1.9% in the second quarter of this year. followed by 1.7% growth in the second half of 2023.

Stephen Slifer

NumberNomics

Charleston, S.C.