Home Sales a Mixed Bag in July

New single-family home sales fell 1.7% in July from June, continuing a slide that began in March. We saw 627,000 new homes sold last month, on an annualized basis; that was 12.8% above last July’s 556,000 units. Last year, we saw the opposite when the year-over-year increase fell sharply before bouncing back to trend. This time, the decline was concentrated in the Northeast. Sales in the South dipped while the Midwest and Western regions ticked up slightly.

The median new home sale price rose to $328,700, a 1.8% increase from a year ago. That was largely driven by an ongoing shift in the composition of new home construction. Today, only 39% of new homes sell for less than $300,000. In December 2007, before the housing bust, 69% of new homes sold in that price range.

Affordability continues to be an issue since the recovery. The income necessary to qualify for a median-priced existing home rose 11.6% in the past year, according to the National Association of Realtors. In the same period, median family income increased only 2.8%.

Existing home sales slowed to the lowest pace in over two years in July. The 1.5% year-over-year decline marks the fifth straight month of declining sales. All regions except the West registered declines.

In the Northeast, we saw a huge decline in new housing, more than 52% year-over-year. That is just one symptom of a larger problem: tight inventory. Would-be buyers in the Northeast found less to choose from last month after a greater-than-expected number of homes were snapped up in June.

Building permits and housing starts in the Northeast have fallen off in the past year and show no sign of picking up. A similar problem has long plagued the West, where the pipeline of new houses still does not look promising, despite a pickup in sales last month. Permits for new houses have steadily moved downward - 17% since March - despite changes in California zoning laws at the beginning of this year. Housing starts in the West fell even further last month, likely due to wildfires.

Bottom Line
In business cycles, housing is typically the first indicator to peak. However, the housing market is unlikely to be the root cause of the next economic downturn, unlike the last recession. Our greatest concern in the housing market is structural in nature: too few affordable homes are being built due to land shortages and permitting requirements that drive up prices. These issues could lead to longer-term problems across the economy by, for example, undermining what has historically been a major source of wealth for households: their homes.

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