Existing home sales in July fell over 20% from a year ago to an annualized rate of 4.81 million. Outside of the onset of the pandemic, the July sales rate was the lowest since late 2015 when the real estate market was recovering from the Great Financial Crisis.
Median prices rose 10.8% from a year ago although at a decelerating rate compared to earlier months when borrowing costs were more accommodative. Low supply of homes means real estate still moves at a brisk clip: homes were on the market for only 14 days, three days shorter than a year ago. In aggregate, 82% of homes were on the market for less than a month.
High prices have not deterred all-cash buyers and surprisingly, first-time buyers made up 29% of all purchases compared to 30% from a year ago when mortgage rates were significantly lower. “Higher mortgage rates will impact would-be first time buyers more than repeat buyers so we expect this demographic to shift to rental options in this environment,” said Jeffrey Roach, Chief Economist for LPL Financial. All-cash deals also include investors but according to the National Association of Realtors, investors made up only 14% of total purchases so we could infer that some cash deals are likely homeowners selling in a high prices region and moving to a lower priced region. As shown in the chart below, regional variations are widening in this stage of the economic cycle. Sales of existing home in the West were hit hard in July. Outside of the pandemic, the rate of west coast sales were close to the sales rate in 2007 and 2008, when the economy was in the depths of a housing crisis.
The hottest metro areas this year are mostly east coast as workers seek out lower costs of living. Most of the top ten areas had median prices lower than the U.S. as a whole.
The domestic economy will likely experience more declines in housing, but this environment is very different from the Great Financial Crisis. The banking sector is well capitalized, we do not see a “Lehman moment” lurking, and homeowners are generally not under water with loan-to-value metrics. The potential risks are the Federal Reserve (Fed) overtightens, consumer incomes fall as the job market weakens, and inflation does not cool as much as the market expects. A slowing housing market could also impact consumer spending through secondary wealth effects.
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