“Housing Recession”: Sales Plunge to Lockdown Levels, Active Listings Surge, Prices Begin to Dip as Price Reductions Spike, Investors Pull Back
By Wolf Richter
Buyers moseyed away from sky-high prices but are still there, just a lot lower, while many sellers hang on to illusions.
Inventory and supply of previously-owned homes of all types – single-family houses, condos, co-ops, and townhouses – surged, and sales plunged, amid sky-high prices that have been made impossible by 5%-plus holy-moly mortgage rates. And so the red-hot housing market turns into a “housing recession,” as the National Association of Realtors called it today after the National Association of Home Builders had already called it that on Monday.
Sales plunged by 5.9% in July from June, the sixth month in a row of month-to-month declines, and by 20% from a year ago, the 12th month in a row of year-over-year declines, based on the seasonally adjusted annual rate of sales (historic data via YCharts):
Sales of single-family houses plunged by 19% year-over-year, and sales of condos and co-ops plunged by 30%, according to the National Association of Realtors in its report.
The seasonally adjusted annual rate of sales in July, at 4.81 million homes, was just a hair above the lockdown-June 2020 rate. Beyond the lockdown months of April-June 2020, it was the lowest sales rate since 2014. Compared to peak sales in October 2020, sales have collapsed by 29% (historic data via YCharts):
Sales dropped in all regions on a year-over-year basis:
- Northeast: -16.2% yoy.
- Midwest: -14.4% yoy.
- South: -19.6 yoy.
- West: -30.4% yoy.
Sales dropped in all price ranges but dropped the most at the low end and at the very high end (over $1 million) for the first time in this cycle.
The drop at the high end is in part related to a plunge in sales in the most expensive coastal markets in California, such as the San Francisco Bay Area (-37%), and Southern California (-37%), according to the California Association of Realtors.
Sellers and buyers are too far apart on price.
“We’re witnessing a housing recession in terms of declining home sales and home building. However, it’s not a recession in home prices,” the NAR report said.
The fact that sales are plunging like this is an indication that sellers and buyers are too far apart on price, that buyers moseyed away from these sky-high prices, and these buyers are still out there, but a lot lower, while many sellers are still hanging on to their illusions, and deals aren’t happening. Sellers just pull their property off the market after a few weeks to wait for a better day.
But some sellers are getting the message, and price cuts have been spiking. In July, the number of sellers that reduced prices of their properties on the market spiked by 31% from June, and more than doubled (+109%) from July last year, according to data from realtor.com. If pricing is realistic, a sale will happen, but pricing too often is not realistic yet, as documented by the plunge in sales:
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