‘Housing recession’: Sales plunge to foreclosure levels, active listings rise, prices begin to fall as price cuts increase, investors pull back

Buyers have moved away from exorbitant prices but are still there, just much lower, while many sellers cling to illusions.

By Wolf Richter for WOLF STREET.

Inventory and supply of older homes of all types – single-family homes, condos, co-ops and townhouses – surged and sales plummeted, amid sky-high prices that were made impossible by 5% more Holy -moly mortgage rates. And so the scorching housing market is turning into a “housing recession,” as the National Association of Realtors called it today, after the National Association of Home Builders called it that Monday.

Sales fell 5.9% in July from June, the sixth straight month of month-over-month declines, and 20% from a year ago, the 12th straight month of declines from year to year, based on the seasonally adjusted annual rate of sales (historical data via Y-Charts):

Sales of single-family homes fell 19% year over year, and sales of condos and co-ops fell 30%, according to the National Association of Realtors report.

The seasonally adjusted annual rate of sales in July, at 4.81 million households, was just a hair above the June 2020 lockdown rate. Beyond the lockdown months of April to June 2020, this was from the lowest sales rate since 2014. Compared to the peak in sales in October 2020, sales have collapsed by 29% (historical data via YCharts):

Sales fell in all regions year over year:

  • Northeast: -16.2% YoY.
  • Midwest: -14.4% YoY.
  • South: -19.6 years.
  • West: -30.4% over one year.

Sales fell across all price ranges, but fell the most at the low end and very high-end (over $1 million) for the first time in this cycle.

The high-end decline is partly related to falling sales in California’s most expensive coastal markets, such as the San Francisco Bay Area (-37%) and Southern California (-37%), according to the California Association. real estate agents.

Sellers and buyers too far apart on price.

“We are seeing a housing recession in terms of declining home sales and home construction. However, this is not a house price recession,” the NAR report states.

The fact that sales are dropping like this is an indication that sellers and buyers are too far apart on price, that buyers have moved away from those exorbitant prices, and those buyers are still there, but much lower, whereas many salespeople are still clinging to their illusions, and business is not getting done. Sellers simply take their property off the market after a few weeks to wait for a better day.

But some sellers get the message and the price drops have increased. According to data from real estate agent.com. If prices are realistic, a sale will occur, but too often prices are not yet realistic, as evidenced by falling sales:

Sales volume dropped due to unrealistic prices. But the deals that have been done have been at still very high prices, which is why so few deals have been done.

The median price fell to $403,800 in July, reducing the year-over-year increase to 10.8%. As significant as that sounds, it was the lowest year-over-year increase since July 2020, after climbing 25% last year (data via YCharts):

The inventory suddenly pops out of the woodwork.

Active listings – total inventory for sale minus properties awaiting sale – jumped 20% in July from June and 31% from July last year to 748,000 homes, the highest since November 2020, according to data from real estate agent.com:

The supply of homes for sale, according to NAR data, jumped to 3.3 months at the current sale rate, the highest since June 2020, and up 27% from a year ago, having more than doubled since January (data via YCharts):

Investors, second home buyers, cash buyers are pulling out.

Individual investors or second home buyers bought 14% of homes in July, compared to 16% in June and May, 17% in April, 18% in March, 19% in February and 22% in January, according to NAR data . In other words, individual investors and buyers of second homes are falling faster than others.

All-cash sales, which include many investors and second-home buyers, fell to 24% of total sales, from 25% in June and May, and 26% in April.

Among the largest institutional home buyers, American Homes 4 Rent has previously explained why it is pulling out of buying in this market where prices have begun to decline in many cities where it is active amid inventory buildup, especially new ones. Houses. “We have to be patient and allow the market to reset,” he said.

Holy-Moly mortgage rates don’t work with exorbitant prices.

Mortgage rates – called “holy-moly” because of the noises buyers make when they see the potential mortgage payment – ​​have been between 5% and 6% since mid-April. The daily rate tracked by Mortgage News Daily today is 5.48% for the average 30-year fixed rate mortgage. The Mortgage Bankers Associations weekly measure, released yesterday, came in at 5.45%. Freddie Mac’s weekly measure, released today, fell to 5.13% for the most recent reporting week. These rates compare to 2.9% a year ago.

Those 5%+ mortgage rates are still incredibly low, with CPI inflation at 8.5%, as the Fed backs away from years of interest rate repression. But home prices are incredibly high, and the two don’t mix, and prices will have to come down to meet buyers.

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