Existing home sales in October totaled 4.43mm, a touch above expectations but down from 4.71mm in September and the lowest print since December 2011 if we take out the covid plunge. Assume many of these contracts were signed over the summer when mortgage rates were between 5.5-6% compared to just under 7% now. The median home price gain moderated to ‘just’ 6.6%, the slowest since the depths of the covid shutdowns and months’ supply rose to 3.3 which is the most since June 2020 but compares to 4 months in October 2019.
The unaffordability for many first time buyers is why they only made up 28% of purchases, remaining below 30% for the 4th straight month. All cash buyers, who of course don’t need a mortgage, were 26% of buyers from 22% in September and 24% in August. Earlier this month the NAR had an annual report profiling buyers and sellers and said this on the first time buyer for the full year, “First time buyers made up 26%, down from last year’s 34%. This is the lowest share of first time buyers since the data collection began. The typical first time buyer was 36 years old this year, rising from 33 last year, while the typical repeat buyer age climbed to 59 years. Both are all time highs.” //www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
Also, and not surprisingly at this point, homes are staying on the market longer, in October by 21 days vs 19 in September, 16 in August and 14 in the two months before. That compares with 18 days in October 2021.
Bottom line, this situation is turning from not just an affordability issue that is turning off potential buyers but one to where buyers can’t even get a mortgage from their bank. The NAR said “More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher. The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.” The housing recession will have a broader impact on the US economy in 2023 as interest rates stay high but hopefully there will be the positive offset of lower home prices in order to bring back this first time cohort, a key link in the housing transaction chain.
I want to put into perspective the increase in home prices, not just over the past two years of 40% in nominal terms but over a long time frame in real terms. According to the Dallas Fed’s report on housing this week, from Q1 2013 thru Q2 2022, home prices rose 61% after adjusting for inflation. “The magnitude of the increase is even larger than that of the preceding housing boom, from Q1 1998 to Q2 2007.”
Of note also in housing was yesterday’s Realtor.com report on October rental rates. They said “the US rental market experienced single-digit growth for the 3rd month in a row after 9 months of slowing from January’s peak 17.4% growth. The median rent growth across the top 50 metros slowed to 4.7% y/o/y for 0-2 bedroom properties. It is the lowest growth rate in 18 months but is still nearly 1.5 times faster than the growth rate seen just before the pandemic hit in March 2020.” Also, an increase in the supply of multi family units is helping too.
Existing Home Sales
Median Home Price gain y/o/y
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.