Key Takeaways:
– Existing home sales fell 4.1% from September to a seasonally adjusted annual rate of 3.79 million in October.
– Sales tumbled 14.6% year-over-year.
– Higher mortgage rates create less demand, while lower mortgage rates create better demand.
– Purchase application data has picked up recently, indicating potential growth in sales in the coming months.
– First-time buyers accounted for 28% of sales in October, individual investors purchased 15% of homes, all-cash sales accounted for 29% of transactions, and distressed sales represented 2% of sales.
– Properties typically remained on the market for 23 days.
– Housing inventory has broken to all-time lows, and the days on market data indicates high demand and limited supply.
– The median existing-home price for all housing types in October was $391,800, an increase of 3.4% from October 2022.
– The low inventory, stable demand, and low distress sales have contributed to national home prices reaching all-time highs.
– If the 10-year yield has peaked, today’s existing home sales could be the cycle low in demand.
– The future trajectory of mortgage rates depends on economic data and the Fed’s decision on interest rate hikes.
– Monitoring labor data, other indicators, and the 10-year yield will provide insights into the potential rise in demand from historically low levels.
HousingWire:
From NAR: Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – fell 4.1% from September to a seasonally adjusted annual rate of 3.79 million in October. Year-over-year, sales tumbled 14.6% (down from 4.44 million in October 2022).
One of my talking points over the years is that it’s rare since 1996 to have existing home sales trend below 4 million. We had this happen in 2008, and it is happening now. This last push lower in demand can be attributed to mortgage rates getting above 8% and the 10-year yield spiking to 5%.
It’s not difficult to understand housing: higher mortgage rates create less demand, and lower mortgage rates create better demand. Recently, mortgage rates have fallen, and we have seen a pick-up in purchase application data. Just remember, purchase application data looks out 30-90 days, so if we get more consistent growth, it will be a few months before the total effect is shown in the sales data.
Below are a few charts to go along with the existing home sales report:
From NAR: First-time buyers were responsible for 28% of sales in October; Individual investors purchased 15% of homes; All-cash sales accounted for 29% of transactions; Distressed sales represented 2% of sales; Properties typically remained on the market for 23 days.
The days on market is a seasonal data line that falls in the first half of the year and then rises in the second half. My rule of thumb for the savagely unhealthy market is that we never want the days on the market to be a teenager or below; nothing good happens in housing when this occurs. This means that we either have a record boom in demand that will end badly, or we have too many people chasing too few homes. Looking at our housing data, it clearly was the second one this time around.
Since housing inventory has broken to all-time lows and we haven’t see the credit boom like the one during the housing bubble years, it’s all about active listings. Anything above 19 days is a good thing. I prefer to have days on market of at lest 30 days all year round, but clearly, I am not getting what I want this year on inventory.
From NAR: The median existing-home price for all housing types in October was $391,800, an increase of 3.4% from October 2022 ($378,800). All four U.S. regions registered price increases.
So when you see 21st-century demand lows and home prices rising year over year, just remember: 2022 was the craziest year ever in housing. In this recent podcast, I discussed what you need to see if you’re looking for a national home price crash. Simply put, for 2023, inventory is low, demand isn’t crashing like it did in 2022, and we have low distress sales. This is how national home prices got back to all-time highs.
Today’s existing home sales might be the cycle low in demand if the 10-year yield has indeed peaked. The history of bond markets and mortgage rates has been that if the market believes the Fed is done hiking, then mortgage rates head lower. How much lower they go depends on the economic data. I recently talked about what we need to look for in this podcast.
For the rest of this cycle, we will keep an eye on the labor data and other data lines and track the 10-year yield; the lower it goes, the more we can rise from these historically low levels of demand.
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Property Chomp’s Take:
Hey there! Let’s have a chat about the latest existing home sales report. According to the National Association of Realtors (NAR), existing home sales took a hit in October. The number of completed transactions, including single-family homes, townhomes, condominiums, and co-ops, fell by 4.1% from September, reaching a seasonally adjusted annual rate of 3.79 million. Compared to the previous year, sales dropped by a significant 14.6%.
Now, here’s an interesting point to note. Since 1996, it has been quite rare for existing home sales to dip below 4 million. We saw this happen during the financial crisis in 2008, and it seems to be happening again. This recent decline in demand can be attributed to the rise in mortgage rates, which surpassed 8%, and the spike in the 10-year yield, reaching 5%.
It’s not rocket science to understand how housing works. When mortgage rates go up, demand tends to decrease, and conversely, lower mortgage rates lead to better demand. Fortunately, mortgage rates have been on the decline lately, resulting in an uptick in purchase applications. However, it’s important to keep in mind that purchase application data usually looks ahead by 30-90 days. So, if we continue to see consistent growth, it might take a few months before it is reflected in the sales data.
Let’s take a look at some interesting figures from the NAR report. In October, first-time buyers accounted for 28% of sales, while individual investors purchased 15% of homes. All-cash sales made up 29% of transactions, and distressed sales represented only 2% of the total. On top of that, properties typically stayed on the market for around 23 days.
Now, the days on the market tend to follow a seasonal pattern, with the first half of the year experiencing a dip and then a rise in the second half. In a “savagely unhealthy” market, we never want the days on the market to be too low. This suggests that either there’s an unsustainable boom in demand that will eventually end badly, or there’s a shortage of available homes. Looking at the housing data, it’s clear that the latter is the case this time around.
Speaking of housing inventory, it has reached all-time lows, and we haven’t witnessed a credit boom like the one during the housing bubble years. So, the focus is on active listings. Anything above 19 days on the market is considered a positive sign. Personally, I would prefer to see days on the market of at least 30 days throughout the year, but unfortunately, that’s not happening this time.
Moving on, the median existing-home price for all housing types in October was $391,800, which represents a 3.4% increase compared to October 2022. Interestingly, all four regions in the United States saw price increases.
Now, when you see demand hitting record lows in the 21st century, while home prices continue to rise year over year, it’s worth remembering that 2022 was an extremely unusual year for the housing market. In a recent podcast, I discussed what would be needed for a national home price crash in 2023. The key factors include low inventory, stable demand, and minimal distressed sales. These are the elements that have driven national home prices back to their all-time highs.
On a positive note, today’s existing home sales might mark the lowest point in demand for this cycle, especially if the 10-year yield has indeed peaked. In the past, when the market believed that the Federal Reserve was done with interest rate hikes, mortgage rates tended to decrease. The extent of the decline depends on economic data. In another podcast, I talked about the indicators we should keep an eye on. As we move forward in this cycle, labor data, among other factors, will play a significant role in determining the direction of mortgage rates.
So, let’s keep an eye on the labor market and other data points while tracking the 10-year yield. The lower it goes, the more potential there is for a rebound from these historically low levels of demand.
And that’s a wrap on the existing home sales report! It’s always interesting to dive into the numbers and see how the housing market is shaping up.
