Comments on existing home sale prices

Comments on existing home sale prices

Existing home sales were reported yesterday. Since, although they are about 90% of the market, they have much less effect on the economy than new home sales, I normally don’t pay that much attention.
But I did want to emerge from my vacation hideaway to make a few comments.


1. Inventory is up 11% YoY. Inventory follows prices, and as prices rise, more and more people decide now is a good time to sell their house (especially if they are downsizing). A huge number of people held off selling during the pandemic lockdowns last year in spring. Those houses are going to come back on the market, and I expect inventory to surge as the pandemic recedes.


2. Prices are up 23.4% YoY, almost as insane an increase as last month’s 23.6%.


3. Prices are even more extreme compared with income as they were at the height of the housing bubble. Using average hourly income, here’s how many hours a person would have to work to buy the median existing-home for sale last month vs. the two peaks of the bubble, August 2006 and May 2007:

6/21: 14,147 hours

8/06: 12,889

5/07: 12,585


4. But when we look at monthly mortgage payments as a multiple of average hourly income, prices aren’t nearly as extreme as they were at the peak of the bubble, because mortgage rates in June averaged 2.98%, vs. 6.52% in August 2006 and 6.26% in May 2007:

6/21: 59.5 hours

8/06: 81.6 

5/07: 77.6


So, as insane as existing home prices appear now, they could still rise substantially higher. Nevertheless, as they continue to rise, I expect sales to continue to decline (unless mortgage rates come down significantly more).