Numbers Show Summer Home Buying Was Red Hot

It’s always interesting trying to get an idea of market trends from the data because it’s always at least a month behind. However, what it shows is that the housing market was on fire in July in many areas of the country. Let’s jump in!

Sales of new homes are showing more modest gains, up just 1% from June at 708,000. Meanwhile, the price of a new home was up more than $20,000 to $390,500. However, there are still other signs that point to a market more in balance. There are 6.2 months’ worth of supply in the market for newly constructed homes.

However, the majority of the volume in the residential real estate market comes from existing inventory. The market for existing home sales is a bit bonkers if you’re a buyer.

To start with, 7.3% more units came online in July, bringing the total number of units available to 1.32 million. Still, this only pushed supply at the current pace of sales up to 2.6 months from 2.5 months in June.

Homes are selling almost as fast as they can be put on the market. The average property is selling in just 17 days and 89% of properties are on and off the market within a month, according to July data. Meanwhile, prices were up a whopping 5.36% on the month at $359,900.

If your buyers are looking for relief, I would offer you the fact that pending home sales were down 1.8% in July. With fewer purchase agreements being signed, that’s a good sign that existing home sales next month will be slower. Some of this is the usual fall cycle now. People are settling in before school starts. Prices may come down a bit for sellers still motivated to move prior to next spring.

Those weren’t the only headlines of note that came out in August. Let’s run through some of the other info you should know. As always, this portion of the report is aided by analysis from Econoday.¹

Consumer Price Index (CPI)

Overall price pressures are bursting at the seams right now, whether that’s temporary or otherwise. Prices are up 0.5% overall for the month and have risen 5.4% on the year.

However, it’s housing that this audience really cares about and that shows up in the shelter numbers. The cost of shelter in July was up 0.4%. This is a relatively big monthly increase for this index, which was slower to see the price metrics we were seeing in other housing indicators.

Retail Sales

Retail sales were down 1.1% overall in July, performing worse than expected. Taking a look at those sales related to housing, furniture and home furnishings had sales declines of 0.6%. Meanwhile, building material and garden supply stores had sales drops of 1.2%.

It’ll be interesting to see what effect the end of enhanced unemployment benefits has on sales moving forward starting with the September data. We’re a couple months out from that, but we’ll see whether this impacts spending on homes and the things that go with them.

Housing Market Index

Some of this might be related to seasonality with kids going back to school in August and thus the end of the summer home buying season, but this index came in 5 points under forecast at 75. This is down 5 points from July.

Both the current sales index and the traffic of buyers going through homes fell 5 points to come in at 81 and 60 respectively. In the meantime, expectations for sales over the next 6 months were flat at 81.

New Residential Construction

As noted earlier, the supply shortages in certain areas of the housing market are acute. One way to get more supply is to build more. Housing completions were up 5.6% in July at a seasonally adjusted annual rate of 1.391 million. That number is also 3.8% higher than the same time a year ago. Single-family completions came in at 954,000 units, up 3.6%. The remaining 426,000 units were sold in buildings with five units or more.

Housing starts came in down 7% at 1.534 million annually in July. It’s still 2.5% higher than they were a year ago. Meanwhile, single-family starts were down 4.5% at 1.163 million. Multifamily construction starts came in at 412,000.

Finally, permits. While these are furthest out from actually relieving supply problems, they are a leading indicator. Permits were up 2.6% to 1.594 million. That’s 6% higher than July 2020. On the downside, single-family permits were down 1.7% to 1.048 million. Multifamily permits settled at 532,000.

Existing Home Sales

While we did cover this pretty extensively earlier, there are a couple of other facts worth pointing out. First, despite the increase in supply last month, total supply on the market is still down 4% from a year ago.

Meanwhile, total sales were up 1.5% from last year at an annual rate of 5.99 million in July. That might not sound drastic, but remember that last year around this time started a buying frenzy as people who were spending more time in their homes were increasingly unhappy with their space. Finally, prices are up 17.8% over the same timeframe.

New Home Sales

Here are couple of other stats we didn’t touch on earlier. At the end of July, there were 367,000 new construction homes for sale in the U.S. That represents a 5.46% increase over June. Still, the median price of a new home is up 18.4% on the year.

Gross Domestic Product (GDP)

Overall economic growth in the second quarter was 6.6%, according to the latest numbers from the Bureau of Economic Analysis. Another good thing is that consumer spending was up 0.1% to 11.9% growth in this revision.

On the downside for this audience is the fact that residential fixed investment fell further in the second quarter according to this new estimate, down 11.5%. This is after outsize increases of 59.9%, 34.4% and 13.3% the prior three quarters.

Pending Home Sales Index

As mentioned above, homes under a purchase contract for future sale were down 1.8% in July to an index level of 110.7. This is important because it tends to be a big indicator of future existing home sales. Generally, because of the time it takes to get through the process of the sale, contracts in place no earlier than the month prior turn into sales the next month.

Case-Shiller Home Price Index

Prices were up 1.8% on a seasonally adjusted basis in June, according to Case-Shiller. As a reminder, this index takes a look at all home sales in 20 major metros, but it’s a rolling 3-month average.

Taking out the seasonal adjustment, prices were up 2.2% overall and 18.6% on the year. This is reaching heights not seen even at the peak of the last housing market from in 2005. However, the reasons for this market have more to do with low interest rates and people still trying to compete with the Joneses in a market turned up to 11 by COVID-19.

FHFA House Price Index

The FHFA House Price Index looks at home sales backed by conventional loans only and it’s not a 3-month continual average. Despite the differences, the two numbers are telling a remarkably similar story.

Prices increased to 1.6% as compared to May and are up 18.8% on the year.

Consumer Confidence

Consumer confidence came in down more than 15 points at 113.8. There are many reasons for this, ranging from inflation to continued developments with COVID-19 to geopolitical concerns.

The good news is this there hasn’t been an impact on consumer spending shown in the data, so it may not be having the impact on future buying plans that we would normally worry about.

While there’s no doubting that it’s a difficult market, it’s important to note that buyers do have the advantage of low mortgage rates going for them right now. As we’ll see, they were pretty much unchanged from a week ago.

The average rate on a 30-year fixed mortgage according to the latest Freddie Mac data was 2.7% with 0.6 points paid in fees. This is flat as compared to a week ago and down from 2.93% in September 2020.

When looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.6 points paid was up a single basis point to 2.18%. The rate has fallen from 2.42% last year.

Finally, the average rate for a 5-year treasury have indexed, hybrid adjustable-rate mortgage was up 1 basis point to 2.43% with 0.3 points paid. This is down from 2.93% last year.

Now that you have all the news that’s fit to transmit digitally, use the knowledge to help your clients get the best deal. Feel free to check out Rocket Pro^SM Insight, our platform to get the visibility into your clients’ mortgage process.

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