Existing home sales fell 2.0 percent in August, according to the National Association of Realtors. That was a slightly larger decrease than analysts expected but the miss was mainly a result of the previous month’s gain being revised higher. On a year-over-year basis sales were down 1.5 percent in August, the first annual decline recorded since June 2020. This was expected, though, as the rapid sales pace seen earlier in the recovery was clearly unsustainable and if anything additional moderation is welcome, at least by prospective buyers.
Indeed, high demand for homes alongside scarce supply have made this a seller’s market, with bidding wars being increasingly common and the majority of properties being sold in under a month. In fact, in August the typical home remained on the market for only 17 days, down from 22 this same period last year. It is not a balanced market, though, as home sales in the $750K and up range have surged by over 40 percent during the past twelve months, whereas sales of homes in the $250K and under range are down more than 20 percent year-over-year. This is due more to supply than demand as a dearth of affordable homes has contributed to the decline in first-time home buyers and rise in both investor and all-cash sales.
Fortunately there are some signs that market conditions may at least be starting to calm down. For example, the NAR report noted that realtors were seeing “less intensive multiple offers” for available properties in August, i.e. 3.8 offers on a typical home, down from 4.5 a month earlier. Similarly, data from Realtor.com showed that although the median price per square foot remains historically elevated, the ratio of prices raised to prices lowered has decreased recently, implying more sellers lowering their asking price. However, there is still a long way to go before the environment improves materially for buyers. The median selling price for existing homes, for instance, rose at the slowest pace in eight months in August but this was still an increase of 14.9 percent.
More supply is the only way to meaningfully address this issue. Some additional sellers may start to show up should mortgage rates continue to drift higher and make refinancing less attractive, but for now new home construction may be the only thing likely to have any immediate impact on affordability. Encouragingly the number of single-family homes under construction rose 1.6 percent in August, and the number of single-family homes completed rose 2.8 percent. Housing permits also lifted in August, and homebuilder confidence, albeit down from the recent highs, remains historically elevated. An obstacle in the way of faster home construction, though, is the ongoing supply volatility resulting in skyrocketing building materials costs.
For example, lumber prices surged earlier this year, tumbled shortly after, but remain more than double the pre-pandemic cost. Further, prices for oriented strand board are up nearly 500 percent since January 2020, and the cost of PVC has exploded higher due to rising natural gas prices and hurricane Ida causing petrochemical factories in the gulf to go offline. The good news is that many of these setbacks should be transitory (more on this next week), but a potentially more lasting supply challenge is labor because many builders continue to report difficulties finding workers, something just about every industry is suffering from at the moment.
What To Watch This Week:
Monday
- U.S. Holiday: Columbus Day
- Banks, Federal Offices, Bond Markets Closed
- Stock Markets Open
- Charles Evans Speaks 6:00 PM ET
Tuesday
- NFIB Small Business Optimism Index 6:00 AM ET
- JOLTS 10:00 AM ET
- 3-Yr Note Auction 1:00 PM ET
- 10-Yr Note Auction 1:00 PM ET
Wednesday
- MBA Mortgage Applications 7:00 AM ET
- CPI 8:30 AM ET
- Atlanta Fed Business Inflation Expectations 10:00 AM ET
- 30-Yr Bond Auction 1:00 PM ET
- FOMC Minutes 2:00 PM ET
Thursday
- Jobless Claims 8:30 AM ET
- PPI-Final Demand 8:30 AM ET
- EIA Natural Gas Report 10:30 AM ET
- EIA Petroleum Status Report 11:00 AM ET
- 5-Yr TIPS Announcement 11:00 AM ET
- 20-Yr Bond Announcement 11:00 AM ET
- John Williams Speaks 1:00 PM ET
- Patrick Harker Speaks 6:00 PM ET
Friday
- 3-Yr Note Settlement
- 10-Yr Note Settlement
- 30-Yr Bond Settlement
- Retail Sales 8:30 AM ET
- Empire State Manufacturing Index 8:30 AM ET
- Import and Export Prices 8:30 AM ET
- Business Inventories 10:00 AM ET
- Consumer Sentiment 10:00 AM ET
- John Williams Speaks 12:20 PM ET
- Baker Hughes Rig Count 1:00 PM ET
