The National Association of Realtors (NAR) reported that June saw the 5th consecutive monthly decline in existing home sales today. The annual pace of sales came in at 5.12 million, well below consensus (5.38 million) and 5.4% lower than May’s reading of 5.41 million.
Overall, sales had already returned to pre-pandemic levels in the past 2 months. Today’s release leaves them near the lower end of the range seen from 2015 to 2019, but well below post-covid peaks around 6.5m.
One of the biggest gripes with home sales (and one of the main explanations for the epic surge in home values) over the past two years is the broad notion of “inventory”. In other words, there were not enough homes on the market to meet the level of demand.
Even now, inventory levels remain historically low. It was a problem that only got worse until early 2021, when rates started to rise significantly from all-time lows. Since then, stocks had continued to decline year on year, but by smaller and smaller quantities. Today’s report is significant because it is the first time since mid-2019 that inventory has increased year over year.
The following graphs of Redfin Market Data Center show other ways of visualizing the same phenomenon. The first is the absolute level of active listings in the markets it covers. Notice the black line (2022) exceeding the orange line (2021), but still very weak compared to 2019 and 2020
Inventory typically increases at this time of year, but the following graph shows that it is increasing at a much faster rate than over the past 2 years. It also accelerated as year-over-year inventory gains slowed in 2019.
Improved inventory can be viewed as both a cause and an effect. Home sales have had reason to calm down for 2 straight years of 20% appreciation combined with one of the largest rate hikes in history. Less sales = more inventory left on the shelf. In this sense, they are an effect.
Higher inventory also acts as a root cause – one of many – for pricing. The median price of existing homes rose just 13.4% year over year, a far cry from the 19-21% gains seen in home price indexes or the 25% increase at the May 2021 summit.
13.4% is still a torrid pace, historically, but if current trends continue and the forecast holds, it should continue to trend back towards 0%. Whether or not price gains go below 0% (i.e., true price declines) is a matter of great debate, and difficult to predict based on unique aspects of the economy post -covid and the supply chain.
One of the easiest places to look at the unique post-covid reality of the housing market is the number of days properties stayed on the market in June. The number of days fell to a record low of 14 from 16 last month.
“Finally, there are more houses on the market,” said NAR chief economist Lawrence Yun. “Interestingly though, the record pace of days on the market imply a more hazy picture of home prices. Well-priced homes sell very quickly, but overpriced homes deter potential buyers.”