– by a New Deal Democrat
Existing home sales do not have much real economic impact because the main economic activity generated by housing is construction. But they help tell us a lot about pricing.
For the record, sales continued their relentless slide this year to 4.09 million year-over-year, down nearly 1/3 from their recent February peak of 6.02 million:
This is in line with the 35% drop we saw yesterday in single-family permits and the 30% drop in total permits. “Less bad” is just newly built housing with 20% less than their peak.
The longer-term view (note: the chart only goes through September) shows that November sales were the lowest since November 2010, excluding May 2020 and June 2012:
But the real significance of existing home sales is in their price signal, and here that signal was unmistakable. At $370,700 for the median existing home, prices are up just 3.5% year-over-year (NAR is not seasonally adjusted, so we have to measure that way):
Here’s a 5-year graph through September from Mortgage News Daily showing the peak annualized appreciation over the last 12 months was 17.6% last January:
My rule of thumb is that data, which can only be measured on an annual basis, has peaked when the year-over-year increase is less than 1/2 of its highest rate over the past 12 months. So any year-on-year increase of less than 8.8% would represent a peak. Needless to say, 3.5% is well below that.
My mantra for the housing market is that sales drive prices. This year, sales turned around in the January-March time frame for all different measures such as permits, starts and new home sales, as well as existing home sales. We now know with virtual certainty that prices peaked at some point during the summer.
Sales figures are, as I said yesterday, recessionary. But the old saying goes that “the cure for high prices is high prices.” Now that we’re seeing prices fall, the foundations are being laid for the coming economic turnaround – the timing of which is yet to be determined.