Weekend Talking Points - 'Waiting'

Would-be homebuyers seem to be holding their breath, hoping that the Fed begins cutting rates soon. Transaction volumes for both new and existing homes have remained subdued this spring/summer. But with the inventory of homes for sale rising, buyers are regaining some negotiating power.

REMINDER! Only one month remains before the August 17 implementation date for the NAR settlement. Are you ready? Are your sellers and buyers ready?

Existing home sales fall again. Sales of previously owned homes fell 5.4% month-over-month (and also 5.4% year-over-year) to 3.89 million units (on an annualized basis). However, the median sales price rose 1.8% MoM to $426,900 — a new record. [Source: NAR]

TP: We’re currently selling previously owned homes at a 2008 pace (bottom of the Housing Crisis).

Competition easing. Homes are lingering a bit longer on the market (days on market was 22 in June 2024 vs. 20 in June 2023), and competitive intensity is dropping (29% of homes sold in June 2024 transacted above their listing price, vs. 33% in June 2023). More on this later. [Source: NAR]

June new home sales failed to rebound. After a 15% month-over-month drop in May 2024, new home sales in June fell a further 1% MoM to 617,000 units SAAR. But the median new home sales price rose 2% MoM to $417,300 (that’s flat YoY). [Source: Census Bureau]

2Q GDP surprisingly strong. The advance reading of 2nd quarter GDP was +2.8% annualized, well ahead of expectations of 2.0%, and an acceleration from 1st quarter GDP of 1.4%. Consumer spending and inventory investment drove the beat. [Source: BEA]

TP: The standard formula for GDP (Gross Domestic Product) is: C + I + G + NX.

C = Consumption (represents ~70% of US GDP); I = Investment; G = Government Spending; and NX = Net Exports (exports minus imports). Since the US imports much more than it exports (also known as a trade deficit), the NX figure is negative.

National inventory up 37% YoY. Realtor.com’s weekly measure of active inventory (which excludes homes under contract) keeps rising. It’s due to a combination of slightly stronger new listings, and a slightly slower sales pace. But active inventory is still ~30% below pre-pandemic levels.

June PCE (inflation) out today. The Fed’s favorite measure of inflation — “core” PCE — comes out on Friday morning. If the annualized rate of inflation drops from +2.6% in May to either +2.4% or 2.5% in June, that should give the Fed the confidence it needs to begin cutting rates in September.

Realtors Confidence Index

Competition levels typically peak around June. After June, inventory tends to build (days on market rises), there are fewer bidding wars, and a smaller percentage of homes sell for more than their listing price. You can discern that seasonality in most of the charts below. With that in mind, it’s worth noting that:

• Competition levels are much lower than they were during the pandemic housing boom
• Competition levels are a bit lower than they were at the same time last year
• Realtors are less optimistic about the future than they were at the same time last year

Outlook for Buyer Traffic
In June 2024, only 13% of respondents expected an increase in buyer traffic over the next 3 months. That’s not terribly surprising considering normal seasonality, but that same figure was 15% in June 2023. To me, it also feels unduly pessimistic considering that rate cuts are around the corner.

Average Number of Offers Received per Sale
The average home sold in June 2024 had 2.9 offers, up slightly from 2.8 in May 2024, but down from 3.5 in June 2023. Remember that this is a national average: in some areas, there are more than five offers per home sold; in others, just one.

% of Homes Sold Above List Price
29% of the homes sold in June 2024 transacted above their initial listing price. That was down from 30% in May 2024 and 33% in June 2023.

Days on Market
The typical home sold in June 2024 had been on the market for 22 days. That was down from 24 in May 2024, but up from 18 in June 2023. As the chart suggests, we should begin to see a sharp rise in DOM (homes lingering on the market longer) in the coming months.

Mortgage Market

The market remains convinced that rate cuts will begin in September. There is even some optimism creeping in for a July rate cut (next week), or that the first cut in September could be 50 basis points (0.5% or half a percentage point).

Here are the current odds on Fed rate cuts at upcoming FOMC meetings below. Keep in mind that the US Presidential election is on November 5.

• July 31: 7% (up from 5% last week).
• Sept 18: 100% (up from 98% last week); 14% probability that rates will be 50 basis points lower than current.
• Nov 7: 100% (same as last week); 65% probability that rates will be 50–75 basis points lower than current.
• Dec 18: 100% (same as last week); 65% probability that rates will be 75–100 basis points lower than current.

Average 30-year mortgage rates spent their second week below 7%. The decline, while certainly welcome, has so far failed to boost either existing or new home sales.

They Said It

“We’re seeing a slow shift from a seller’s market to a buyer’s market. Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis.” — Lawrence Yun, NAR’s Chief Economist

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