Existing-home sales slipped again in August as rising mortgage rates make housing prices the least affordable ever. Despite denials in many corners, a crash is underway.

Existing-home sales data from the NAR via St. Louis Fed download

The National Association of Realtors^® NAR^® reports Existing-Home Sales Decreased 0.7% in August.

Highlights

• Existing-home sales retreated 0.7% in August to a seasonally adjusted annual rate of 4.04 million.
• Sales dropped 15.3% from one year ago.
• The median existing-home sales price climbed 3.9% from one year ago to $407,100, an increase of 3.9% from August 2022 ($391,700). It’s the third consecutive month the median sales price surpassed $400,000.
• The inventory of unsold existing homes dipped 0.9% from the prior month to 1.1 million at the end of August, or the equivalent of 3.3 months’ supply at the current monthly sales pace.
• First-time buyers were responsible for 29% of sales in August, down from 30% in July and identical to August 2022.
• All-cash sales accounted for 27% of transactions in August, up from 26% in July and 24% in August 2022.

Existing Home Sales Seasonally Adjusted 

Existing-Home Sales Month’s Supply

Supply of homes is up 4 consecutive months hitting a level last seen in November of 2022. Yet, median price keeps rising.

Existing Home Sales Long Term

Existing-home sales chart courtesy of Trading Economics.

Yes, This is a Crash

• Existing-home sales are down 35.8 percent in 2.5 years.
• Existing home sales are back to a level seen in the mid 1970s.
• If there is a decline next month, an that is highly likely, existing-home sales will drop to a 12-year low.

Real estate tooters keep telling me there is no crash.

What the heck are the above stats? Chopped liver? An egg salad sandwich?

Prices have not crashed but transactions have. Crashes are rare, but we are in one now, from a transaction perspective.

People who want to move are effectively trapped in their houses because they do not want to trade a sub-3% mortgage for a 7.0% mortgage.

The bidding wars we do see are from people who are price insensitive. They make for amusing anecdotes but the above chart shows the real picture.

This crash is likely to last longer because interest rates are likely to stay higher for longer because the Fed fears stoking more inflation.

Home sales mean appliance sales, new furniture, cabinets, new carpet, landscaping, etc. Who doesn’t spend a lot more money when they move into a new home?

Yet, from a price perspective, the bubble is still expanding.

The Housing Bubble Is Expanding Again

Case Shiller National and 10-City home prices indexes plus OER, CPI, and Rent indexes from the BLS.

Chart Notes

• The latest Case-Shiller home price indexes is for June. It represents repeat sales of the same house in roughly a April-May timeframe.
• OER stands for Owners’ Equivalent rent. It’s the price one would pay to rent one’s own home, unfurnished, without utilities.
• CPI is the consumer price index.
• Rent of primary resident is just what it sounds.
• CPI, OER, and Rent as as measured by the Bureau of Labor Statistics (BLS).

Home prices wildly disconnected from the CPI in 2000 and in 2013. The disconnect accelerated in 2020.

After a two-month decline in most markets, prices are again on the rise.

Monthly payments are approaching triple from February of 2020 for the exact same house. That does not include home insurance or taxes.

Good luck with that.

Consumer Price Inflation Jumps 0.6 Percent Led by Energy and Shelter

CPI data from BLS, chart by Mish

On September 13, I noted Consumer Price Inflation Jumps 0.6 Percent Led by Energy and Shelter

The price of gasoline rose 10.6 percent, rent another 0.5 percent, shelter, 0.3 percent, and new cars 0.3 percent leading the way for a 0.6 percent increase in the CPI in August.

The price of rent has gone up at least 0.4 percent for 25 straight months. Not to worry, Paul Krugman says this is lagging.

Krugman likes to exclude shelter(34.8%) , food (13.4%) , and energy (7.0%) from the CPI.

That's 55.2% exclusions.

Why not exclude everything? https://t.co/NPsy5BTYom https://t.co/ugRV9NuHc0 pic.twitter.com/2ahgnkQvTB

— Mike "Mish" Shedlock (@MishGEA) September 15, 2023

Do Renters Matter?

A comment I frequently hear on Twitter is that home prices don’t matter because the home ownership rate is 65.9 percent. That means renters constitute “only” 34.1 percent.

Yeah right. Tell the 34.1 percent that they don’t matter.

Fed Expresses Uncertainty, Worries About Inflation, Fires Warning Shot on More Hikes

Yesterday, I noted Fed Expresses Uncertainty, Worries About Inflation, Fires Warning Shot on More Hikes

Key Takeaways

• Inflation elevated
• Tighter credit weighs on activity
• Impact of tighter credit on inflation is uncertain.
• Committee is highly attentive to inflation risks

The rest of the statement is typical boilerplate about monitoring inflation and balance sheet reduction.

Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

Fed’s Tightrope Dilemma

Today, I noted Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

The dot plot of FOMC participants is for tighter policy through all of next year.

The longer the Fed holds rates high, the longer the housing crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.

That is the Fed’s tightrope dilemma, of its own making. If you have any confidence in the Fed you have seriously misplaced confidence. The Fed is a pack of group-think economic illiterate wizards, not the inflation fighters they pretend to be.

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