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Preview: U.S. Existing Home Sales for July Will Decline For a Sixth Straight Month

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

Latest data from the NAR showed 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.

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