Higher interest rates have created a bifurcation in the housing market. While builders can build smaller models and lower prices, existing homeowners can’t do the former and generally won’t to the latter.

As a result, homebuilders have been able to take advantage of the declining in commodity prices (like for lumber) to maintain volume at lower prices. Meanwhile, existing home sellers have been unable or unwilling to sell their homes mortgaged at 3% in order to buy a home which will be mortgaged at 6% or 7%.

That pattern continued in July, as existing home sales declined to a 5 month low of 4.07 million on an annualized basis (the past 2 years of data are shown below):

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Meanwhile, the median price ofr an existing home is still up 1.6% YoY.

For all intents and purposes, many homeowners are trapped in their existing homes by the all-time low mortgage rates they were able to lock in early in the pandemic.

Tomorrow we will see if the more economically important new home sales continue their recent rebound, or whether the increase in mortgage rates back above 7%, and perhaps the waning of commodity deflation does some further damage.

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