You keep hearing the financial media talk about the next recession and the ongoing uncertainty. Most of us agree that a series of rolling recessions have been seen in various sectors over recent years even if the broader economy has managed to escape recession since the pandemic. Housing is one sector that no one dares call it a recession, even if that’s how it looks and feels. Almost…
Oggonomics believes that owning a home is one of the key tools to long-term financial success. There are of course exceptions, but for those who are planning to stay close to where they live for a decade or until retirement that homeownership will pay off in the end. That’s still true even if a home price does not appreciate much and even if the market may soften.
Calling a real housing recession requires this mix to generally point negative when adding all components together and on an overall national basis — falling prices, higher or rising interest rates, increased supply of homes for sale, lower affordability, and rising days on the market. Then there is the cost of new builds and remodels as well, but let’s keep this to existing homes for the time being. It seems like there is always one aspect holding housing out of a true recession.
Now the National Association of Realtors has shown that existing-home sales fell by 1.0% in September to an annualized rate of 3.84 million homes. The data also shows that existing home sales fell by 3.5% versus a year ago.
The U.S. housing market is almost in a national recession. Existing home sales are the slowest since 2010 and the housing market is now into its second year of serious problems as it was also a weak 2023. Many economists were already expecting the housing recovery to have started this year. There are a couple saving graces that may be preventing housing from looking even worse — fresh affordability data and the West region.
Imagine if existing home sales data also showed negative pricing trends. The association data suggests that some buyers are waiting for lower interest rates on their mortgages, and potential election uncertainty was also noted. The Fed’s 11 rate hikes up to last year, and the “higher for longer” rate posturing, along with soaring home prices versus prior years have likely not helped.
Where the mix gets interesting is that the median existing-home price was up 3.0% from a year ago to $404,500 (from $392,700). This marked the fifteenth consecutive monthly price gain on a year-over-year basis. How can there be a housing recession if prices keep rising?
There was a rise in unsold existing homes on the market (inventory) with a 1.5% gain from August to 1.39 million. At the current sales pace, that’s about 4.3 months of supply. Looking back a year makes things look worse. Total housing inventory at the end of September was up 23.0% from the 1.13 million unsold existing homes (or just 3.4 months) back in September 2023.
Existing homes are also taking longer to sell. The association’s data showed that properties typically remained on the market for 28 days in September. That is up from 26 days in August and up even more than the 21 days on the market from September 2023.
While the 30-year mortgage rates are down from a year ago, the recent rise in the 10-year Treasury note yield has also started reversing the lower mortgage rates after the Fed’s first rate cut of the cycle was just seen in September.
The information starts looking even more mixed when looking regionally. Three of four major U.S. regions saw total existing home sales decline in September, with the exception being the Western region. And despite lower sales in general, all four U.S. regions saw price increases.
The National Association of Realtors noted that moderating home price increases are welcome news for home buyers. And noting that wage growth is now outpacing home price appreciation means that affordability will improve.
Apparently the jobs are holding strong in the West region of the U.S. based on average prices there. The NAR data showed that existing-home sales in the West rose by 4.1% in September 760,000 annualized units. The median price in the West was also $616,400, up 1.7% versus September 2023.
Freddie Mac’s 30-year fixed-rate mortgage data was showing an average loan rate of 6.44% as of October 17. That’s down from a much higher 7.63% one year ago, but it’s up from 6.32% one week earlier and up even more from the 6.08% seen in September after the Fed’s rate cut was announced.
Here are some other stats from the NAR data for September 2024:
- First-time buyers accounted for 26% of sales in September, matching the all-time low (Aug-2024; Nov-2021).
- All-cash sales were 30% of transactions in September, up from 26% in August and versus 29% in Sep-2023.
- Individual investors or second-home buyers (which may also be all-cash) purchased 16% of homes in September, down from 19% in August and 18% in September 2023.
- Distressed sales (foreclosures & short sales) were basically unchanged at 2% of sales in September.
- Single-family home sales fell by 0.6% to 3.47 million annualized units in September, down 2.3% from the previous year; and median existing single-family home price rose 2.9% from a year earlier to $409,000.
- Existing condominium and co-op sales fell 5.1% in September to 370,000 annualized units, down 14.0% from a year ago; and median existing condo price was rose 2.2% to $361,600 in September versus a year earlier.
It is impossible to deny that housing is still weak. Whether another year of salary increases wins over lower rates ahead — or potentially falling home prices — remains to be seen. This might not add up to a pure housing recession, but some aspects (and some locations) sure feel like a housing recession.
