THE BASIS POINT

Existing home sales down 13 of 14 months, price now $375,700. Is this affordable?

 
 

Sales of existing homes — which are 87% of all sales (the other 13% of sales are newly built homes) — have declined 13 of the last 14 months. Sales rose in February, declined in all of the previous 12 months, and NAR’s March existing home sales also declined 2.4% from February to 4.44 million units annualized.

As for home prices, they rose $12,700 in March to $375,700. Is this affordable? Did March sales decline because of rates or the bank crisis? Below are answers and details.

RATE SPIKE HURT MARCH HOUSING MORE THAN BANK CRISIS

The culprit for March’s existing home sales decline is more likely rising rates than the March bank crisis.

Why? Because February is when most people get into contract for March closings. And rates rose from 6% on February 1, 2023 to 7% by March 2, per Mortgage News Daily.

That deters homebuyers for 2 reasons:

First, Rates rising from 6% to 7% in one month is a huge spike that would give pause to most home shoppers.

Second, we’ve seen from MBA data that homebuyer mortgage apps increase as rates drop down near 6%, so anything too high above 6% — and especially above 6.5% — remains uncomfortable for buyers.

As for the March bank crisis, we’ll see homes sales response to that next month with April home sales — because April closings would have gotten into contract in March.

EXISTING HOME SALES & PRICES MARCH 2023

– Annualized sales of existing (as opposed to newly built) homes was 4.44 million for February (annualized, seasonally adjusted).

– This is down 2.4% from February and down 22% from one year ago.

– Available inventory of homes to buy is super low at 980,000 units, up slightly (5.4%) from March 2022 when it was 930,000.

– Median existing home prices rose $12,700 from $363,000 in February to $375,700 in March.

– The median home price of $375,700 has dropped $38,100 from June peak of $413,800.

– The price down trend since last June is important trend because existing home sales are 87% of all sales (new home sales are the rest).

So a strong majority of homes for sale in America are lower in price since last summer.

– NAR uses median prices because they say average prices are skewed higher by a small share of high-priced sales.

– This downward price trend should give some relief to buyers, and we now see rates are a huge factor in sales.

– Rates began February at 6% and ended February near 7% due to stubborn inflation data.

Rates as of now are 6.75%.

– The February rate spike likely led buyers into fewer contracts that closed in March, driving the 2.4% sales decline.

– Existing homes typically remained on the market for 29 days, and 65% of them sold within a month.

– This means low inventory is still causing a lot of competition in the housing market.

– First time buyers were 28% of sales, cash buyers were 27% of sales, and individual investors or second home buyers were 17% of sales.

HOME AFFORDABILITY MARCH 2023

– Speed of sales — March deals closed in 29 days vs. 34 days in February — suggests consistent demand.

– This means there are opportunities for organized, pre-approved buyers without a price rout for sellers.

– Monthly cost on a $375,700 home purchase with 5% down and today’s 6.75% rate is $3037 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $85k* per year to qualify for this.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $102k* per year to qualify.

– Buyers holding for a home price crash may not see that.

This might be the best this cycle gets for 2 reasons.

First, demand will rise as stubbornly high inflation wanes and mortgage rates follow.

– March CPI inflation did drop meaningfully from 5.9% to 4.9%, but it’s still high. And Core CPI stayed stubbornly high at 5.6%.

– The Fed remains committed to beating inflation even with the banking crisis, and rates will follow inflation down.

– Housing demand will rise as rates fall, and this will challenge affordability.

Second, despite 13 of 14 months of declines, the MBA predicts home sales will rise in the coming years.

– Here’s the chart showing that trend. If home sales increase like this, home prices may rise again.

MBA predicts exiting home sales and new home sales will rebound in 2H23 and 2024 - The Basis Point

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WHAT’S NEXT?

– March new home sales 4/25 — we’ll update new home affordability then.

– March Core PCE inflation 4/28. This Fed preferred measure peaked at this viral 2022 pop culture moment.

– Come see how it plays out, and subscribe to our killer newsletter 🙂

– And please reach out with questions.

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Reference:

Existing-Home Sales Slid 2.4% in March (NAR)

Inflation Peaked When Rapper Ice-T’s Gas Station Robbery Went Viral

* To arrive at these qualifying income numbers, The Basis Point uses 43% deb-to-income ratio that Federal regs allow for all mortgages of this size in America. We use Mortgage News Daily for rates.

 

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