Existing home sales fell 2.4% in June, but Chief Economist Lawrence Yun’s take on the numbers goes deeper than the headline data. He said the market hasn’t been this stalled since 2008, and there was no foreclosure crisis to explain it.
Existing home sales have remained in a narrow range for nearly four years. The only other time it happened was when foreclosures flooded the market. But that’s not the case this time, said Lawrence Yun, chief economist at the National Association of Realtors.
The comparison came as NAR released its June Existing Home Sales Report on Thursday, showing that sales were down 2.4% from May to a seasonally adjusted annual rate of 4.09 million, even as the median price reached a record high of $440,600. Beyond the top-line numbers, Yoon offered a series of observations in a phone call with reporters that added context to the report.
slump without crisis
Yun said existing home sales have remained in the 3.9 million to 4.2 million range for 36 of the past 38 months, something that has only happened once before.
Lawrence Yun
“We are now in our fourth year of 4 million home sales,” Yun said. He said the only time sales stayed near 4 million units for such an extended period of time was during the 2008 recession and foreclosure crisis, after which sales were below 4 million units for four years and then over 5 million units a year for 11 years.
“Unlike 2008, the current recession is not caused by distressed properties, Yun said. Foreclosures and short sales accounted for just 2% of transactions in June, near historic lows. “I wonder how long home sales will remain near 4 million,” Yun said.
While the number of transactions may be frozen, the dollar figures are not, Yun said. Although the number of homes being handed over remains below pre-pandemic levels, total sales volume in dollar terms is above pre-pandemic levels. He attributed the gap to the fact that home prices are 50% higher than they were before the coronavirus pandemic.
Record price, two-sided story
“Is this good news like the stock market or bad news like food prices?” Yun asked about June’s record median price. He said record prices were “good news for existing homeowners and their home equity, but bad news for potential homebuyers, especially renters looking to buy their first home.”
NAR’s June housing affordability index was 102.3, an improvement from 95.5 a year earlier, which the association attributed to wage growth outpacing home price growth. But Yun said the index is near its lowest level since last summer on a month-on-month basis, as June marks the seasonal peak for home prices, which he called a “bread and butter” month for real estate.
“Affordability is definitely a big challenge for people who want to become homeowners, which is why we need more supply,” Yun said, calling for converting vacant commercial buildings into residential units and reducing regulatory burdens on builders.
Where to profit
Yun said price increases were concentrated at the top of the market, with sales of homes priced under $100,000 down year-over-year, but sales of homes priced over $1 million up 18%. He said homes priced over $1 million still account for less than 10% of sales, but the median price is trending “slightly higher” due to the luxury market.
Yun also called June’s 1.3% year-on-year inventory increase “insignificant” and said the market needs 30% to 40% growth to ease supply constraints.
What Yun sees behind the numbers
Yun said he noticed a pattern in NAR’s monthly data. That is, the previous month’s numbers keep being revised upward as later transactions are reported. “What we’re looking at is a little bit of a twist on the part of economists,” he said, adding that this pattern suggests that data that arrives later tends to result from stronger markets than the first numbers captured.
He also addressed why June’s sales decline appears to be inconsistent with previous pending sales data, which had shown an increase. Yun said closing deals represent “real economic activity,” such as issuing a mortgage or moving a loaded truck, but that pending contracts are “only a hint of what might happen,” as some contracts fail before closing.
Yun pointed to lockbox data representing how often agents show customers through their homes as one of the earliest signals NAR tracks. He said the number of lockbox openings in June was unchanged from the same month last year, although it had increased for several months.
Yun also noted that a New Jersey property valued at just over $1 million sold for $500,000, more than the asking price. He called this anecdotal, but said it reflects continuing bidding wars in supply-constrained markets in the Northeast, such as New Jersey, Connecticut and Massachusetts.
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