from Nar: Existing home sales fell in June as the median sales price climbed to its highest ever for the second consecutive month, according to the National Association of REALTORS®. Sales fell in all four major U.S. regions. Year-over-year sales were down in the Northeast, Midwest and South, but unchanged in the West.
In March, I wrote that monthly existing home sales had peaked and that would be the case unless mortgage rates dropped. So far, this call has proven to be correct. Some existing home sales figures for 2024 are similar to 2023. However, mortgage rates spiked again, turning our weekly housing market tracker into negative territory, and when rates didn’t come back down, it set the stage for a seasonal peak in sales in February.
That could change quickly if mortgage rates approach 6% or lower. However, we would need to see the labor market soften to get rates down to this level.
From Nar: The total registered housing inventory at the end of June was 1.32 million units, an increase of 3.1% from May and an increase of 23.4% from a year ago (1.07 million units). At the current sales pace, there is a 4.1-month supply of unsold inventory, up from 3.7 months in May and 3.1 months in June 2023. In May 2020 (4.5 months).
My affordability index model was created for 2020-2024 because this is a unique time in American history. Inventory had been slowly depleting for many years leading up to 2020, so unhealthy home price growth was possible. This is exactly what happened.
My model is simple: we can accept national house price growth of 23% over five years – 4.6% per year or less. However, this was not successful as house prices increased by a total of 30% in the previous two years. The second variable I added in 2020 is that if the 10-year yield reaches above 1.94% (which is 4% plus mortgage rates), the housing market will cool down. But that didn’t happen in 2020 or 2021, with home prices rising out of control. My affordability gauge was destroyed, with the 10-year yield not exceeding 1.94% until after March 2022, but that was long after home prices exploded. Naturally, demand for housing is set to collapse.
While inventories are well below normal, affordability is much worse now than in recent history, so prices should cool down in the second half of the year, as I discuss in this podcast. My 2024 home price predictions have been wrong so far because home prices rose so much in the spring. Supply is better this year, but if interest rates fall in the second half of 2024, it will be more challenging to make correct forecasts.
Today’s existing home sales were lower than expected, but the positive side is that inventory is returning to what I think is a balanced level. Inventories are highly seasonal, so we only have a few months of NAR data for seasonal declines. However, in order for the housing market to normalize again, we need inventory to rise from historic lows, and we’re seeing this happen with the collapse of housing bubble prices across the country.
