Home Sales Hit a Fresh Low in July as Housing Market Looks for Direction
The housing market has made little progress over the past year or so, and this summer, the wind officially seems to have gone out of its sails. One after another, the economic data reports have disappointed, leading MarketWatch to observe, back in June, that the current housing cycle may have run its course.
On Thursday, the market hit another possibly worrisome milestone. It was spotted by Amherst Pierpont Securities’ chief economist, Stephen Stanley, after the Commerce Department released figures on sales of new homes.
“Combined with the softness in existing home sales, the overall home sales figure dipped below 6 million in July to the lowest reading in nearly two years,” Stanley wrote.
As a reminder, sales of previously-owned homes make up the vast majority of housing market sales. Those sales declined for the fourth month in a row in July, and touched the lowest point in over two years, the National Association of Realtors said Wednesday.
A look at total home sales over the years
Because there’s a real lack of existing homes to buy, most housing industry attention has been laser-focused on activity in the new home space. For years, builders have kept inventories lean even as demand surged.
But last month, as Stanley pointed out, the number of new homes available for sale hit its highest level since 2009. At that month’s pace of sales, it would take 5.9 months to exhaust available inventory, one of the closest post-crisis readings to six months, which has historically been considered a marker of a market evenly balanced between supply and demand.
What’s going on?
First, it can’t be said often enough: “The government’s home-construction reports are based on small samples and are often revised heavily, making it hard to rely on any one month’s data.” To put that another way, the Commerce Department said July sales were 1.7% higher than June’s – with a 14.7% margin of error.
That said, there are many reasons for sales to be running out of steam. Between slowly rising rates and prices, homes are increasingly less affordable, even as rental options are multiplying. And many Americans have questions about whether homeownership is worth it, given the new tax laws.
But even if the weakness is real, and it lasts a few months, there’s still hope. As Jefferies economist Ward McCarthy put it, “This is not the first temporary slowdown in housing activity this cycle.”