Existing home sales fell 1.3% m/m to 5.44 million (annualized) in July, after sliding by a downwardly revised 2% to 5.51 million in the prior month. The headline print disappointed market expectations which called for a moderate uptick of 0.5%.
Activity pulled back in both the single-family and condo/co-op segments, with transactions falling by 0.8% to 4.84 million in the former and 4.8% to 600 thousand in the latter.
Regional performances were more nuanced, with activity pulling back swiftly in the Northeast (-14.5%, marking the second consecutive decline) and Midwest (-5.3%), while improving in the West (+5%) and South (+2.2%).
The number of homes available for sale fell 1% in July and remained low by historical standards at seasonally unadjusted 1.92 million. This is down 9% from year-ago and accounts for just 4.2 months’ worth of sales at the current pace, compared to 4.8 at the same time last year.
The tight inventory is keeping upward pressure on prices, with the median price advancing by 6.2% y/y – roughly in line with the 6.3% pace in the month prior. Properties typically stayed on the market for 30 days – up from 28 days in June but down from 36 days a year ago. Additionally, first-time homebuyers accounted for 33% of sales, up slightly from 32% in the month prior and a year ago.
Key Implications
It’s hard to find encouraging details in today’s report, given the size and breadth of the decline and the fact that it marks the second consecutive monthly pullback. Existing home sales, while still holding near the 5.5 million mark, have generally trended down since March.
The low inventory of homes available for sale has been one of the main culprits holding back activity in recent months, but we expect to see some improvement on this front. Robust home price growth, while making it harder for some prospective homeowners to enter the market, should help boost inventories as existing homeowners continue to warm up to the idea of listing their properties. This theme is corroborated by results of a recent NAR survey which found that 71% of homeowners believed that now is a good time to sell, compared to 61% for the same period last year.
Moreover, robust demand for homes, owing to an improving labor market, should encourage more homebuilding. The increase in the supply of new homes, particularly in the larger single-family segment, should facilitate a transition away from renovations and into new properties, and help ease gridlock in the resale market. However, this process will be very gradual.
Overall, a recent pullback in mortgage rates, the gradual unlocking of inventories and continued job gains should help support sales activity going forward. In fact, some improvement was already visible in pending home sales which rose robustly in June, breaking a three month streak of declines, with more good news likely on the horizon.
