Existing-Home Sales Fall Again

Sales of existing homes fell 3.4 percent in September to a 5.15 million seasonally adjusted annual rate. Sales are down 4.1 percent from a year ago and 10 percent from the recent peak of 5.72 million in November 2017. Sales declined in three of the four regions tallied: sales fell 3.6 percent for the month in the West and are 12.2 percent below the September 2017 rate; sales declined 2.9 percent in the Northeast, putting sales 5.6 percent below year-ago levels; and sales dropped 5.4 percent in the South, leaving that region’s sales rate 0.5 percent below the year-ago pace. Sales were unchanged for the month in the Midwest but remain 1.5 percent below the year-ago level.

Sales in the market for existing single-family homes, which account for just under 90 percent of total existing-home sales, also fell 3.4 percent in September, coming in at a 4.58 million seasonally adjusted annual rate (see chart). From a year ago, sales are down 4.0 percent. Sales were down across the four regions: sales fell 4.0 percent in the West to 950,000 from 990,000 in the prior month; sales dropped 4.6 percent in the South to 1.86 million; the Northeast saw a 3.4 percent decline; and the Midwest posted a 0.8 percent pullback.

Total inventory of existing single-family homes for sale declined 1.8 percent to 1.66 million in September, the third decrease in a row, leaving the months’ supply (inventory times 12 divided by the annual selling rate) at 4.3 for the fourth month in a row. However, that is still well above the recent low of 3.1 months in December 2017. The rise in months’ supply has brought the figure back from ultra-low levels of late 2017 to the range that prevailed during the early 2000s (see chart).

The combination of rising home prices and higher interest rates is likely weighing on housing activity. Home affordability overall has been trending lower after surging from 2009 to 2012 because at that time a combination of extraordinarily low interest rates and falling home prices made for a buyer’s market. For the housing market overall, affordability remains favorable, though the declining trend is likely to continue. Sales are unlikely to move significantly higher in the coming months, and new-home construction is unlikely to contribute significantly to growth in gross domestic product in coming quarters. Still, the economy overall remains very healthy, supported by a tight labor market, rising incomes, strong balance sheets, and high levels of consumer confidence. The main risks on the horizon are fallout from escalating trade wars and the ballooning federal deficits, which are likely to require significant funding in coming quarters and may drive long-term rates significantly higher.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.