- Existing Home Sales fell to a pace of 4.09 million annualized units November 2022
- Existing Homes Inventory declined only marginally in November 2022, but still represents a 3rd consecutive month of declines
The pace of Existing Home Sales declined by 7.7% in November 2022, to 4.09 million units on an annualized basis, according to the National Association of Realtors. This represents the level of home sales if conditions in November were to persist for a full 12-month period. Existing Home Sales are now practically identically to the frozen market conditions endured during the early throes of the pandemic (4.07 million in May 2020), when a combination of consumer uncertainty and government movement restrictions at their most preventative allowed virtually no new economic activity.
The housing market’s current woes have been brought on by rapidly rising mortgage rates, but also are likely still experiencing a consumer confidence impact. Ever-present discussion of the likelihood of recession in 2023 and the reduced purchasing power resulting from inflation over the past two years has throttled homebuyer sentiment.
Existing home prices have fallen for three consecutive months through September 2022. This trend is representative of the dramatic decline in demand for homebuying that has dominated the housing market narrative throughout 2022. Existing Single-Family Home Sales, as opposed to the topline number which includes Condos & Co-ops, is also down to pandemic-trough lows, posting a pace of 3.65 million units for November 2022.
The housing market is a clear demonstration of the “Demand Destruction” that the Federal Reserve has attempted to achieve with its aggressive monetary policy tightening that they have engaged in since the start of 2022 and have communicated will persist into the first quarter of next year. Lack of new demand undercuts price pressure resulting from any supply/demand relationship, including housing demand. The Federal Reserve will continue to aim for similar demand softening beyond the housing market – that is, for everyday consumer goods and services – until above-target (2%) consumer price inflation has been extinguished.
The supply side of the housing market is also reacting to the slowdown in U.S. homebuying. Residential building permit issuance stood at 1.34 million on an annualized basis in November 2022. The concern this presents for the U.S. housing trends going forward is that the market was undersupplied even before pandemic influences took hold.
That reality contributed to the rapid increase in prices as homebuyers re-evaluated their preferences and timelines in response to the pandemic, as well as the emerging work from home trends that emerged during the past two years. While home prices are now declining, an undersupplied market will keep prices from finding a true balance even on the other side of the recession that PNC is forecasting for 2023Q2 through 2023Q4.
Once homebuying sentiment picks up again, and mortgage rates begin to ease entering 2024, a lack of adequate existing homes for sale threatens to keep prices volatile with the resulting increase in demand. Existing Home Sales are clearly a weak spot for the U.S. economy now and likely at least for the next year due to subdued demand. Balancing the market once that demand strengthens again will depend upon homebuilders responding to, and hopefully anticipating, that uptick in buying trends in the same way that supply growth is currently in decline.
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