The debate’s over: it’s slowing. No doubt about it. Now begins the next phase of the discussion: How long will it slow, how far will it dip, and will it bring recession?
Existing home sales declined 1.3% in June, the slowest since January and nearly 9% below the pace from a year ago, the National Real Estate Association reported yesterday. And while prices for existing homes kept rising last month, it was the weakest jump in more than a decade. But there are signs that something less is coming. Indeed, condo prices are already slipping on a year-over-year basis.
David Lereah, chief economist at the NREA, downplays the negative implications regarding yesterday’s news. “Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing,” he said in a press release that accompanied NREA’s data update.
Is the transition to stability from red-hot bull market merely a step to a bear market in housing? No matter how you spin it, there’s no getting around the fact the housing market is cooling. By any number of metrics, the trend is clear. What’s more, there’s no mystery behind the falling volume of sales. Higher mortgages rates aren’t helping, which in turn is helping elevate the supply–a textbook case for predicting lower prices ahead.
Again quoting NREA’s Lereah, who explains that “a year ago we had a lean supply of homes and a sellers’ market, with monthly home sales at an all-time record high.” The lean supply has since blossomed into something meatier. Existing homes available for sale in June were at a 6.8-month supply at the current sales pace, up from a 4.4-month supply a year ago, according to NREA.
Paul Kasriel, who heads up Northern Trust’s economic research division, yesterday predicted that prices will fall for existing homes in the months to come so as to reduce the excess supply that currently prevails. “The knock-on effects of all this will be subdued consumer discretionary spending as those ‘home ATMs’ are not refilling as rapidly as before,” he wrote in a research note yesterday. “Another factor that will curtail consumer discretionary spending is slower income growth in housing-related industries as employment and sales commissions moderate further.”
The bottom line: the residential real estate market is now in a recession, Kasriel opines.