Southern Market for Housing Holds On

New home sales rose 1.5% in August after being revised slightly higher for July. The South, the largest housing market in the country, led the gains. On a seasonally adjusted basis, home sales sit at 740,000 units for the year, a drop of 24.3% from this time last year. August marked the third straight month of double-digit annual losses; the housing boom was just getting underway last spring and summer. Now builders are slow to add much-needed inventory as supply chain bottlenecks and labor shortages plague their industry. The number of move-in-ready homes is less than 10% of homes for sale.

Existing home sales slipped 2% in August after two straight months of growth. Sales now sit at 5.9 million units, a 1.5% drop from a year ago and the first annual decline since June of 2020. All regions experienced a drop in sales in August as home prices continue to rise, pricing many would-be buyers out of the market. Prices are up 15% from a year ago. Sales of homes at the $1 million or more level are up 40% from a year ago.

Mortgage applications to purchase a home grew 2.2% in the middle of September, reaching total volumes last seen in April. This demand should provide a floor on sales in the fall. We do still expect the housing market to remain a drag on growth into the end of this year. Compared to a year ago, mortgage applications have been dropping for 18 straight weeks.

Many households that took on the option to delay their mortgage payments during the crisis are in good enough shape to resume making payments or sell their homes at a considerable profit. By August, only 1.6 million borrowers were on a forbearance plan, totaling about 3% of all mortgages outstanding, the lowest level since the program began. Those plans are set to expire in September and October but we do not expect to see a flood of foreclosures.

Bottom Line
Inventory of homes available for sale is trickling back into the market; however, this is skewed to the higher end. First-time buyers fell to only 29% of buyers in August, the lowest share in over two and a half years, while all-cash sales remained strong. With mortgage rates expected to slowly rise after the Federal Reserve begins tapering its asset purchases at the end of the year, buyers who have paused their searches to wait out record-high price growth and bidding wars may have to wait a while longer to resume their search.

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