The annual sales volumes for new and existing homes rose to an all-time high in May and June, pushing the months’ supply of unsold homes to all-time lows. Amid strong sales activity and low supply, home prices continue to climb.
With all the talk of rate increases, some consumers sense an urgency to take advantage of today’s low mortgage rates. Therefore, we don’t believe that the current peak sales volume levels can be sustained much longer. On a national level, the relative supply of homes on the market remains low, with only 4.1 months of existing homes and 3.4 months of new homes available. However, we have noticed some markets beginning to change, with a sharp rise in inventory. We expect the supply of existing homes for sale to increase sharply in the next few months, while sales volume declines slightly.
Our grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.” In this grading system, it is OK to be a “C” student. Here is our current report card:
Economic Growth: C-
Economic growth remains near historical averages. Retail sales are down, along with personal income growth. This decrease can be attributed to lagging sales in lower-end retail stores and an increasing number of jobs within lower-paying industries.
Leading Indicators: C
All five of the leading indicators we track declined this month, but the drop is not enough to cause concern. The outlook for economic growth remains very positive.
Mortgage Rates: A
Fixed rates declined this month, while adjustable rates remained relatively unchanged. The percentage of adjustable-rate loans also declined. The Fed’s rate increase this week was anticipated by the mortgage market, resulting in little change.
Consumer Behavior: C+
All three consumer indices rose this month, with Consumer Confidence still above 100. Revolving Consumer Credit per Household has decreased for two consecutive months, with the dollar decrease in both months the largest decline we have seen.
Existing-Home Market: B+
The number of people filing mortgage applications to purchase a home rose in June. This could be due to an expectation of higher interest rates. The month’s supply of unsold homes for June is near the historical minimum, which demonstrates that demand for homes remains strong.
New-Home Market: B+
In June, home builders sold homes at an annual rate of 1.33 million homes, down from a record high in May, but still impressive. Home prices marched upward at an annual appreciation rate of 11.7 percent, to a median price of $209,900.
Housing Supply: B-
Single-family permits set a record in May, rising to an adjusted 1.61 million. The number slipped slightly in June to 1.51 million, but similar to other declining housing supply statistics, remains well above average.
John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis.
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