August existing home sales: confirmation that home prices have peaked

– by a New Deal Democrat

The sale of an existing home in itself is not that important from an economic point of view, as there is simply a transfer of ownership rather than a complete build-out. But they can help to check the turning points and in this case very important in terms of prices.

But first, sales fell slightly (-2000) to 4.80 million year-on-year. This is the lowest seasonally adjusted monthly number since June 2020, down 20% from its post-pandemic peak, and also the lowest in nearly 6 years, excluding the worst of the pandemic months ( via Mortgage News Daily; note that this morning’s data is not included yet):

But we do know that home sales have been declining throughout this year in the face of Fed rate hikes and associated higher mortgage rates.

As I always say, sales drive prices. Since sales reversed many months ago, when will prices reverse? Remember, in “real,” income-adjusted terms, median home prices have been as high as, or even slightly higher than, they were at the height of the housing bubble more than 15 years ago.

And here we have important corroborating data this month. The NAR does not seasonally adjust its measure of median existing home prices, so an annual basis is the only way to measure it. My rule of thumb for such metrics is that they peak when their year-over-year increase is less than 1/2 of their peak increase over the past 12 months.

In August, the annual price increase was 7.7%:

That’s less than 1/2 of the 16.5% year-over-year increase last August. It’s also less than 1/2 of the year-over-year increases for every month starting November of last year through May of this year, excluding March. In other words, existing home prices likely peaked early this summer.

Because non-seasonally adjusted average *new* home prices likely peaked in June, following the same rule of thumb, as shown in the chart below:

this means prices are falling across the housing market.

However, housing inventory is still limited. In August, there were 444,600 new listings and 779,400 total listings. As shown in the chart below, new listings (in red) are only slightly below their pre-pandemic August average of 493,400, but total listings are about 650,000 below their pre-pandemic August average of 1,427,600:

New listings are up overall, but will need to increase much more to get total listings back to pre-pandemic levels.

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