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On Thursday, the National Association of Realtors (NAR) will release the U.S. Existing Home Sales (EHS) for July. My proxies suggest that EHS will contract for a sixth straight month, reflecting weaker demand.
 

Summary

• Local/regional data suggest that Existing Home Sales fell significantly in July
• Housing affordability declined sharply, affecting demand
• Existing Home Sales inventory kept rebounding in July
• Prices probably peaked, resulting in more cancellations

1. Local/Regional Data Suggest That Existing Home Sales Fell Significantly In July

According to my calculation, in order for the sales in adjusted value to be stable from June 2022 to July 2022 (i.e. 5 120k), non-adjusted data would have to decrease by 18.4% YoY from July 2021 to July 2022. However, local figures that I have gathered show a larger drop. Bill McBride also found similar results with sales expected to fall by 23.9% YoY. As a result, I expect housing transactions to decline by ~5% MoM (almost in line with Bloomberg consensus: -4.9% MoM). It would be the sixth straight monthly contraction!

2. Housing Affordability Declined Sharply, Affecting Demand

The latest data from the NAR showed the housing-affordability index declined to 98.5 in June, the lowest level since June 1989, when the index stood at 98.3. The key problem is that the typical monthly mortgage payment rose to $1,944 in June (up 49.9% YoY), assuming a 30-year fixed-rate mortgage and a 20% down payment. As a result, some buyers (especially first-time buyers) can no longer qualify for mortgages. In the meantime, elevated prices (in an environment of recession) are pushing other buyers to wait for a correction.

3. Existing Home Sales Inventory Kept Rebounding in July

One of the recent development related to the housing market has been the sharp rebound in inventory. According to Realtor.com, in July, “The national inventory of active listings increased by 30.7% over last year, a record-high growth rate.” The move was confirmed by data from Altos, pointing to a spike of a little more than 30% YoY in mid-August.

🇺🇸 July 2022 Monthly #Housing Market Trends Report - https://t.co/SeKBQcwMDu
*The national inventory of active listings increased by 30.7% over last year, a record-high growth rate.
*Link: https://t.co/rGImlCZC2U pic.twitter.com/LJUJy5eCUZ

— Christophe Barraud🛢🐳 (@C_Barraud) August 15, 2022

4. Prices Probably Peaked A Top, Resulting In More Cancellations

As demand started weakening, a jump in inventory is likely to push prices down in the coming months. Therefore, several housing data providers reported that home-sale cancellations spiked with several buyers expecting a price inflection point. As a matter of fact, Redfin noted that in July “Nationwide, roughly 63,000 home-purchase agreements fell through in July, equal to 16.1% of homes that went under contract that month. That’s the highest percentage on record with the exception of March and April 2020, when the onset of the coronavirus pandemic brought the housing market to a near standstill. It’s up from a revised rate of 15% one month earlier and 12.5% one year earlier.” In this context, my guess is that the median existing single-family home sales price should experience a YoY deceleration compared to June.

🇺🇸 #Housing | Homebuyers Are Increasingly Backing Out of Deals as Slowing Market Boosts Negotiating Power - Redfin
~63,000 home-purchase agreements fell through in July (16.1% of homes that went under contract)
*Link: https://t.co/lnLd76aPV8 pic.twitter.com/r9uadN5jrl

— Christophe Barraud🛢🐳 (@C_Barraud) August 16, 2022

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