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Comments on existing home sale prices

Summary:
- by New Deal democratExisting 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

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 - by New Deal democrat

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).

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