Median prices for existing homes is probably at peak; expect inventory to continue to increase

 Median prices for existing homes is probably at peak; expect inventory to continue to increase

Existing home sales were reported yesterday for September, up 7% month over month on a seasonally adjusted basis. While they are about 90% of the market, they are much less important for the economic cycle than are new home sales, which will be reported next week.

I suspect new home sales will increase, since interest rates stabilized at very low rates earlier this year, and the increase in existing home sales is some confirmatory evidence. Realtor.com doesn’t all FRED to produce data more than 12 months old, so here is the last 12 months for both new and existing home sales, normed to 100 as of September 2020:

Both declined, but new home sales much more deeply.

Realtor.com does provide FRED with both new and total (“active”) listing counts for the past 5+ years. Here’s what that looks like (note, new listings are on right scale):

Note that new listings declined precipitously in late 2019 even before the pandemic – and the pandemic certainly hasn’t helped.

Since neither series is seasonally adjusted, comparing them YoY is more useful:

While new listings rebounded this year, they were slightly lower YoY in September. More importantly, they are down almost 10% since September 2019, which was just before the big decline started, while total listings are down over 20% since then.

In the “the cure for high prices is, high prices” department, YoY median price gains have continued their deceleration. Here’s what the last 4 months have been:

Jun +23%

Jul +20%

Aug +15%

Sep +13%

At this rate, prices will roll over YoY sometime this winter. While these are not seasonally adjusted either, my rule of thumb is that a deceleration of 50% typically marks the top for any such statistic. We are virtually there already as of September, causing me to believe that we are at the peak. This follows my rubric that sales peak first, followed by prices. We can expect inventories – the YoY% decline in which has already decelerated by over 50% – to continue to increase.