The slip in pending home sales was no false signal as existing home sales fell 1.8 percent in June to a lower-than-expected annualized rate of 5.520 million. Year-on-year, sales are still in the plus column but not by much, at 0.7 percent which is the lowest reading since February.
Compared to sales, prices are rich with the median of $263,800 up 6.5 percent from a year ago. Another negative for sales is supply which fell 0.5 percent in the month to 1.96 million for an on-year decline of 7.1 percent. Relative to sales, supply is at 4.3 months vs 4.2 months in May.
High prices appear to be keeping first-time buyers out of the market with the group representing 32 percent of sales vs 33 percent in May and 35 percent for all of last year.
Rising prices and thin supply, not to mention low wages, are offsetting favorable mortgage rates and holding down sales. Housing data have been up and down and unable to find convincing traction so far this year. Watch for new home sales on Wednesday where general strength is the expectation.
Same Old Problem?
Existing home sales slipped in June, with the blame again placed on low levels of inventory. The decline in sales, announced on Monday by the National Association of Realtors® (NAR), was anticipated, as pending home sales have decreased in each of the previous three months, ticking down 0.8 percent in May.
NAR said sales of existing single-family houses, townhouses, condos and cooperative apartments were down 1.8 percent in June, to a seasonally adjusted annual rate of 5.52 million units, the second slowest performance of the year.
Lawrence Yun, NAR chief economist, says the pullback in existing home sales in June reflected the lull in contract activity in March, April, and May. “Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that’s straining their budget,” he said. “The demand for buying a home is as strong as it has been since before the Great Recession. Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages inflicting many markets are keeping a large segment of would-be buyers on the sidelines.”
The median existing-home price for all housing types in June was $263,800, up 6.5 percent from June 2016 ($247,600). This is a new peak price, surpassing the record set in May. June marked the 64th straight month of year-over-year gains.
The median existing single-family home price was $266,200 in June and the median existing condo price was $245,900. Those prices reflected annual increases of 6.6 percent and 6.5 percent respectively.
The tight supply of homes continues to be reflected in short marketing period. Properties typically stayed on the market for 28 days in June, one day more than in May, but six days fewer than in June 2016. Short sales were on the market the longest at a median of 102 days in June, while foreclosures sold in 57 days and non-distressed homes took 27 days. Fifty-four percent of homes sold in June were on the market for less than a month.
“Prospective buyers who postponed their home search this spring because of limited inventory may have better luck as the summer winds down,” said NAR President William E. Brown. “The pool of buyers this time of year typically begins to shrink as households with children have likely closed on a home before school starts. Inventory remains extremely tight, but patience may pay off in coming months for those looking to buy.”
First-time buyers accounted for 32 percent of existing home sales in June, down from 33 percent the previous month and a year earlier, while individual investors purchased 13 percent, unchanged from a year ago.
Supposedly buyers may have better luck because the pool of buyers is shrinking as summer winds down. Really? By that logic, if there was only one person looking there would be a 100% success rate.
Yun says “The demand for buying a home is as strong as it has been since before the Great Recession.”
Really? By what measure?
Attitudes and Price
This is not a case of inventory or strong unmet demand. Here are the real factors.
- The Fed re-blew the housing bubble and wages did not keep up. People cannot afford the going prices. Thus, the number of first-time buyers keeps shrinking.
- Millenials do not have the same attitudes towards debt, housing, and family formations as their parents.
- Millenials are unwilling to spend money they do not have, for a place that will keep them tied down. They would rather be mobile.
Second and Third Quarter Impact
The decline in existing home purchases portends weakness in consumer spending.
There will be fewer people painting, buying furniture, updating appliances, remodeling kitchens, adding landscaping etc. The pass through effect will be greatest in the third quarter unless there is a rebound.
Mike “Mish” Shedlock