The June existing home sales report from the National Association of Realtors paints a depressing picture of the residential real estate market. The release is here: https://www.nar.realtor/newsroom/existing-home-sales-retreated-3-3-in-june-monthly-median-sales-price-reached-second-highest-amount
- Home sales down 3.3 percent
- Sales off 18.9% from a year ago
- Inventory available for sale didn’t change – 2.8 months (seasonally adjusted)
- Median prices rose again to $410,200. This is the second highest median price level on record.
- Inventory is down 13.6% from one year ago
- First time homebuyers represent 27% of sales, down slightly from May
- Distressed sales were 2% and cash sales were 26% of total sales
What the data continues to illustrate is that the residential real estate market is fundamentally illiquid today. This means seniors will have a difficult time selling their homes when needed. The prospect of another rate hike via the Federal Reserve next week is better than 50% (call for a quarter point). Further rate escalation will continue to limit seller’s access to capital precluding them from purchasing a home.
For CCRCs/Life Plan communities, the news is also dismal. As I have written many times before, new sales into entry fee communities typically require the resident to liquidate his/her/their home. The net realized sales price is the capital for the entry fee in nearly all cases. When the home becomes fundamentally illiquid due to factors such as exist today, the move becomes unfeasible and thus, delayed or avoided. With occupancy levels still below pre-pandemic levels, gains become all the more difficult when the residential real estate market is stymied by supply limitation and capital access restrictions (rate and lending criteria). A recent post on this topic is available here: https://wp.me/ptUlY-zJ
The concern for seniors (on their behalf) is access to needed care and shelter becomes limited. A non-responsive residential market fundamentally forces seniors to stay put, not because of an unwillingness to move but because the sales prospect for their residence are limited. If as forecasted, rates rise again in the near term, this problem (illiquidity) worsens. We may likely see an extended period of a high degree of illiquidity in the residential market (mid- 2024 before improvement).
Great blog post! The data you presented paints a challenging picture for the residential real estate market. I was wondering, in your opinion, what measures can be taken to address the issue of illiquidity in the market and provide better access to capital for sellers?
Primary Tinting
blog.primarytinting.net
Thanks for reading and commenting.
Unfortunately, no quick fix exists. The easy answer is for the Fed to stop raising rates and start cutting but inflationary pressures remain. Quelling inflation is best done at the source…spending. When govts spend dollars in amounts that come with no positive economic return (expressed in GDP growth, improved productivity, etc.), inflation is the byproduct. Too much money was injected into the economy as stimulus and other policy objectives over the last three years, fully disconnected from productive purposes/positive return. The Fed thus has limited tools to reduce inflation other than reducing its balance sheet (allowing maturing securities to run off, not buying new securities such as mortgages) and raising inter-bank rates. The constrict on money supply reduces inflation by slowing economic activity as capital becomes scarce and thus, more expensive.
Bottom-line, govt. spending is the problem and not just in Washington…states too. The Fed would be more helpful at this point by sounding this message loudly and holding rates for now. Rate increases have a lagging impact and most signs show a slowing economy.