Weekend Talking Points - ‘Bummer'

In most cities across the nation, home prices continue to rise — despite high mortgage rates. That’s a tough combination for buyers, leading to lower transaction volumes. But it’s also a reminder that the best time to buy a house was always last year :) .

Existing home sales fell again. They dropped 0.7% MoM to 4.11 million units (seasonally-adjusted, annual rate). That’s the 3rd-straight MoM drop. Total inventory rose to 1.28 million units, but the median sales prices still rose 2.9% MoM and hit a new record of $419,300. [NAR]

Realtor’s Confidence Index for May was flattish. 67% of properties sold in May were on the market less than a month (down slightly from 68% in April), and there was an average of 2.8 offers for each property sold (down from 3.2 in April). But 30% of homes sold in May transacted above their initial listing price (up from 27% in April). More on this later. [NAR]

Another record for Case-Shiller. Case-Shiller’s national home price index rose 0.3% month-over-month in April, and is now up 1.5% year-to-date (4.4% annualized). That said, price growth is decelerating, and 4 of the big city indexes declined MoM. More on this later [S&P Global]

Similar story from the FHFA. On their numbers, national prices rose 0.2% MoM in April (6.4% YoY). However, the West South Central (which includes Texas) and Middle Atlantic (which includes NY) regions declined 0.2% MoM. Again, price growth does appear to be decelerating in general. [FHFA]

New home sales slumped in May. New home sales fell 11% month-over-month (and 17% year-over-year) to 619,000 units (annualized), well below expectations. [Census Bureau]

Pending home sales fall again. After dropping 7.7% month-over-month in April 2024, NAR’s Pending Sales Index dropped a further 2.1% MoM in May 2024 to 70.8. [NAR]

1Q GDP in the books. The final GDP reading for the first quarter of 2024 was 1.4% YoY, revised up slightly from 1.3% previously. (First reading = “advanced”, second reading = “preliminary”, third reading = “final”).

On the Case (Shiller) Again

The Case-Shiller national home price index hit another new record in April, rising 0.3% MoM (and 6.3% YoY). The national index is now up 1.5% year-to-date, which equates to 4.4% on an annualized basis. While these are all impressive numbers, price growth is clearly decelerating:

“Last month’s all-time high came with all 20 markets seeing accelerating price gains. This month, just over half of our markets are seeing prices accelerate on a monthly basis. At 6.3% annual gains, the index has decelerated from the start of the year, with only two markets rising on an annual basis.” — Brian D. Luke, Head of Commodities for S&P Dow Jones Indices

Other observations

• On a raw basis (unadjusted for normal seasonality), the national index rose 1.2% MoM in April 2024, and each of the 20 big city indexes rose between 0.6% (Portland) and 2.2% (Boston).
• On an adjusted basis, the national index rose 0.3% MoM in April 2024, the same as in March 2024.
• Four of the 20 big city indexes fell (Phoenix -0.3% MoM, Washington D.C. -0.1%, Dallas and Denver down a tiny amount).
• The strongest adjusted price growth came from Cleveland (1.2% MoM, 2.8% year-to-date), New York (0.8% MoM, 2.8% year-to-date), and Chicago (0.8% MoM, 2.9% year-to-date)

Realtor’s Confidence Index for May

Each month, the National Association of Realtors surveys its members to gather data on market sentiment, competition levels and price trends. The results for May were fairly similar to April, with buyers facing relatively competitive conditions, but Realtors down in the dumps at the loss of another spring/summer selling season.

I: Realtors are quite pessimistic about the near future

Only 20% of respondents said that they expect increased buyer traffic over the next three months. That was down from 22% in April 2024, but slightly up from 19% in May 2023. Now, as you all know, residential real estate is a seasonal business, so it’s quite normal for Realtors to be expecting a slowdown in the Fall. But in 2020 (49%) and 2021 (49%), Realtors were a lot more bullish.

II: Two-thirds of homes sold in May were on the market for less than a month.

That was down slightly from 68% in April 2024, and 74% in May 2023. However, in May 2021 and 2020, nearly 90% of the homes sold were on the market for less than a month.

III: 30% of homes sold in May transacted above their initial listing price.

That was up slightly from 27% in April 2024, but the same as in May 2023. In both 2022 and 2021, the figure was around 55%.

IV: Number of offers per home sold slipped to 2.8 in May.

That was down from 3.2 in April 2024 and 3.3 in May 2023. On a nationwide basis, sales are a lot less competitive than they were in May 2022 (4.2 offers per sale) and May 2021 (5.0 offers per sale). But they are basically the same as they were in May 2020 (2.7).

V: First time buyers just less than a third of sales in May.

As I’ve commented previously, it’s impressive that first-timers have consistently been around one-third of monthly sales — even with record home prices and skyrocketing mortgage rates. Part of this is because first-time buyers often have to buy — due to life changes like marriage or kids. Another reason is that people have been holding on to their homes longer, which implies fewer repeat buyers.

VI: But cash buyers remain a significant 28% of the market.

With such high mortgage rates, it’s mostly older homeowners and investors that have had the cash (or home equity) available to transact. As mortgage rates have risen, cash buyers have made up an increasing share of monthly sales:

May 2024: 28%

May 2023: 25%

May 2022: 25%

May 2021: 23%

May 2020: 17%

Mortgage Market

Average 30-year mortgage rates were steady at around 7% for a second straight week. But that could change with the release of the May PCE (inflation) report on Friday morning. When Jerome Powell talks about the Fed’s 2% target, he’s talking about “core” PCE. Since the previously released May CPI was better (lower) than expected, there is good reason to expect the same from the PCE.

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: 10% (flat with last week)
• Sept 18: 62% (was 64% last week)
• Nov 7: 75% (was 77% last week)
• Dec 18: 93% (was 94% last week)

They Said It

“The first half of the year did not meet expectations regarding home sales but exceeded expectations related to home prices. In the second half of 2024, look for moderately lower mortgage rates, higher home sales and stabilizing home prices.” — Lawrence Yun, NAR’s Chief Economist