October existing home sales: a pause, or possibly reversal, in the rebalancing trend

 – by New Deal democrat

Yesterday’s report on existing home sales indicated, at least for one month, a pause or even reversal in the previous trend of abating price increases and increased inventory. While existing home sales are  not nearly so important to the economy as new home sales, to the extent that home buyers must pay more of their savings, and increased monthly mortgage payments, the less they have to spend on other consumer goods and services. So this pause or reversal is not good, although it may just be one month’s noise.

Existing home sales have been flat in the range of 3.85 -4.10 million annualized for almost two years. October’s report released yesterday indicated that continued, as sales were at 3.96 million units annualized:

But the moderation in the YoY% change in prices from the past few months reversed somewhat as the median price for an existing home increased 4.0% YoY (below graph shows non-seasonally adjusted data):

On a YoY basis, in response to the longer term decline in inventory, existing home prices have risen consistently since 2014, and accelerated during the COVID shutdowns. After briefly turning negative YoY in early 2023, troughing at -3.0% in May, comparisons accelerated almost relentlessly to a YoY peak of 5.8% in May of this year. 

Here are the YoY% comparisons since then:

June. 4.1% 

July.  4.2% 

August. 3.1%

September  2.9% 

October 4.0%

As I wrote above, YoY prices had been moderating. I suspect this month’s number was noise.

Finally the sharp rise in the inventory of existing homes abated somewhat last month. In August it was 22.7% higher YoY; in September 23.0% higher, but in October it declined to 19.1% higher YoY (below graph shows absolute numbers, not seasonally adjusted):

Last month II concluded my review of both new and existing home sales by saying:

”[T]hose trends [lower mortgage rates help in the sales of new homes, which has helped drive down demand somewhat for existing homes, which in turn has led to an abatement in their price increases and an increase in inventory] all continued as to the existing home market. Demand has been driven even further down, despite somewhat lower mortgage rates. This again led to more inventory and a continued abatement in price growth. I expect these trends to continue for awhile.”

Not so much this month. While sales remained in range, price appreciation increased and the pace of inventory accumulation decreased. Again, this may have just been noise in one month’s report, and/or it may be a reflection of the recent increase in mortgage rates back to 7.0%. Because the underlying fundamentals are the existing homes, including both prices and mortgage rates, are historically expensive, I expect the trend of the past few months to re-assert itself.

Rebalancing of housing market continues: existing home sales down, inventory up, price growth moderates further, Angry Bear by New Deal democrat.