It has been a rather slow period for home sales, as mortgage rates remained high throughout the traditional "spring homebuying season." However, it's not simply high mortgage rates that have kept potential buyers at bay, but rather the impact on home affordability when they are combined with very high home prices.
There was a time not long ago when purchasing a newly constructed home would see buyers paying more (and sometimes far more) than what would be the cost of an existing single-family home. That's not really been the case at times for a couple of years now, and with median costs for new homes roughly on par with those for existing properties, there just isn't any shelter from today's home affordability issues. Put another way, there are only a limited number of potential borrowers who can afford to buy homes at these rates and prices, and the pool seems to be dwindling.
Sales of existing homes slumped by 5.4% in June, the National Association of Realtors reported last week. That put the present annual rate of sale at 3.89 million, a figure last seen at the end of last year when mortgage rates were approaching a 23-year high. Since the supply of available homes to buy rose to 4.1 months at the current rate of sale (an actual 1.32 million units available) -- nearly a five-year high, excluding one pandemic-distorted month -- it's becoming less about the availability of homes than their costs. In June, the median price of an existing home sold hit a new record high of $426,900, up 4.1% over last year.
June is often the peak month for existing home prices, and a seasonal decline in them often forms to close the last half of each year. However, mortgage rates have eased a bit this summer, and if lower rates start to show as the Fed begins making policy changes this fall, pent-up demand will likely keep home prices well-supported, diminishing any beneficial seasonal effects. For that, we'll need to wait to see what develops, but now, existing homes are pricier than they have ever been.
The new home market is faring little better than the existing. Sales of newly constructed homes settled back by 0.6% in June from an already meager level, landing at an annualized 617,000 units sold last month. The softer sales pace has helped balloon inventories of new homes to a 9.3-month supply at the present rate of sale, and growing stockpiles of unsold inventory is likely what is fostering the blues among home builders lately.
If sales don't pick up soon it is likely the pace of new construction will be unable to maintain its present moderate pace. While there can be deterrents to buying a newly constructed home (location and other items) the cost of a new home is currently very competitive with that of existing one; in fact, the median price of a new home sold in June was $417,300 -- not only cheaper than an existing home but also nearly unchanged from a year ago. Builders have been working to meet demand for lower-cost homes slashing prices and offering financing incentives to attract buyer attention.
With the cost of either an existing or new home nearly equivalent, there isn't anywhere to go to find an affordable place to live, at least on a median-price basis. Median of course means that half the homes sold were less expensive and half more, but it's a fair bet that competition for those lower-cost homes remains significant. The housing market remains a long way from balanced, and it may be a while before we get back there again.
Along with lots of others, we wish housing market conditions were better, that mortgage rates and home prices were more favorable and that affordability was more balanced. Over time, lower mortgage rates will eventually come, home prices will stop pressing inexorably higher and incomes will rise to help close the affordability gap. A gentle trend to this end is the best possible outcome since the other kinds of mechanisms that might restore balance could include more of a "hard landing" than anyone might prefer to see.
The Fed has a get-together this week; no change to policy is expected and none will come. As has been the case since last July, what the Fed has to say is more important than what they do (or don't). The committee will have plenty to consider as will investors sifting through the coming pile of data this week. These include the June JOLTS survey, the second quarter Employment Cost Index, an update to worker productivity, ISM manufacturing data, and of course the July Employment Situation report. A very packed, busy week for markets is on tap, but at least based on how bond yields moved over the last few days, there's likely to be little movement in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac Thursday. As was the case last week, a couple of basis points in either direction is the most likely outcome.
There was a time not long ago when purchasing a newly constructed home would see buyers paying more (and sometimes far more) than what would be the cost of an existing single-family home. That's not really been the case at times for a couple of years now, and with median costs for new homes roughly on par with those for existing properties, there just isn't any shelter from today's home affordability issues. Put another way, there are only a limited number of potential borrowers who can afford to buy homes at these rates and prices, and the pool seems to be dwindling.
Sales of existing homes slumped by 5.4% in June, the National Association of Realtors reported last week. That put the present annual rate of sale at 3.89 million, a figure last seen at the end of last year when mortgage rates were approaching a 23-year high. Since the supply of available homes to buy rose to 4.1 months at the current rate of sale (an actual 1.32 million units available) -- nearly a five-year high, excluding one pandemic-distorted month -- it's becoming less about the availability of homes than their costs. In June, the median price of an existing home sold hit a new record high of $426,900, up 4.1% over last year.
June is often the peak month for existing home prices, and a seasonal decline in them often forms to close the last half of each year. However, mortgage rates have eased a bit this summer, and if lower rates start to show as the Fed begins making policy changes this fall, pent-up demand will likely keep home prices well-supported, diminishing any beneficial seasonal effects. For that, we'll need to wait to see what develops, but now, existing homes are pricier than they have ever been.
The new home market is faring little better than the existing. Sales of newly constructed homes settled back by 0.6% in June from an already meager level, landing at an annualized 617,000 units sold last month. The softer sales pace has helped balloon inventories of new homes to a 9.3-month supply at the present rate of sale, and growing stockpiles of unsold inventory is likely what is fostering the blues among home builders lately.
If sales don't pick up soon it is likely the pace of new construction will be unable to maintain its present moderate pace. While there can be deterrents to buying a newly constructed home (location and other items) the cost of a new home is currently very competitive with that of existing one; in fact, the median price of a new home sold in June was $417,300 -- not only cheaper than an existing home but also nearly unchanged from a year ago. Builders have been working to meet demand for lower-cost homes slashing prices and offering financing incentives to attract buyer attention.
With the cost of either an existing or new home nearly equivalent, there isn't anywhere to go to find an affordable place to live, at least on a median-price basis. Median of course means that half the homes sold were less expensive and half more, but it's a fair bet that competition for those lower-cost homes remains significant. The housing market remains a long way from balanced, and it may be a while before we get back there again.
Along with lots of others, we wish housing market conditions were better, that mortgage rates and home prices were more favorable and that affordability was more balanced. Over time, lower mortgage rates will eventually come, home prices will stop pressing inexorably higher and incomes will rise to help close the affordability gap. A gentle trend to this end is the best possible outcome since the other kinds of mechanisms that might restore balance could include more of a "hard landing" than anyone might prefer to see.
The Fed has a get-together this week; no change to policy is expected and none will come. As has been the case since last July, what the Fed has to say is more important than what they do (or don't). The committee will have plenty to consider as will investors sifting through the coming pile of data this week. These include the June JOLTS survey, the second quarter Employment Cost Index, an update to worker productivity, ISM manufacturing data, and of course the July Employment Situation report. A very packed, busy week for markets is on tap, but at least based on how bond yields moved over the last few days, there's likely to be little movement in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac Thursday. As was the case last week, a couple of basis points in either direction is the most likely outcome.
