Employment Cooling, Housing Slipping as Fed Continues to Combat Inflation

The nation’s red hot labor market cooled a bit in August, indicating that the Federal Reserve’s inflation-fighting efforts may be having the desired effect. But Fed officials aren’t declaring victory yet. Far from it.

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The sizzling housing market is cooling off ─ or maybe it isn’t.  The answer depends on the numbers you use and the analysts you believe.  The numbers support different conclusions and the analysts disagree.

 To read recent housing reports and the commentary on them is to understand President Harry Truman’s wish for a one-armed economist – who couldn’t say “on the other hand.”  There are many examples.

Existing home sales were 2 percent higher in July than in June, reversing several months of sales declines,  Year-over-year sales were down 3.1 percent, the National Association of Realtors (NAR reported, but  the July sales were stronger than in any recent month other than June of this year and July of 2020.

On the other hand (you’ll be seeing or inferring that phrase a lot in this discussion), most of the strength was concentrated at the high end of the market; lack of inventory continues to hamstring sales at the lower end, Lawrence Yun, the NAR”s chief economist, noted, “frustrating first-time buyers and pricing some shoppers out of the market.”

Another key NAR indicator – pending sales -- declined for the second consecutive month in July and for the fifth time in the past seven months, dipping nearly 2 percent below the June total and pushing the index 8.5 percent below its July 2020 reading – more evidence of a cooling market, some analysts contend. 

Adopting that half-empty view, one analyst pointed out: “While existing home sales have increased in the last two months…those sales don’t look especially bright as we head into the fall and winter doldrums.”

Prices Still Rising

Home prices continue to rise.  Median prices reported by the NAR  increased at an annual rate of more than 13 percent in the second quarter, outpacing the 11.7 percent gain in the second quarter of last year.  NAR’s July median home price of  $359,000 was only slightly below June’s record of $362,800.  Radian reports that month-over-month home prices increased by an average of 10.7 percent during the past seven months; the year-over year increase of 17.3 percent was “a record high,” according to this firm’s calculations. 

However (shorthand for  ‘on the other hand’), Redfin reports that more than 5 percent of listed homes reported price drops—the highest level since 2019.  Equally significant, the company says, while the price-drop metric usually stabilizes this time of year, instead, “it is climbing.”  Although asking prices of newly listed homes were 10 percent higher in July  than the same month a year ago, Redfin notes, that is 2.2 percent below the figure reported for July of last year. 

Other analysts also see signs of cooling in the home price trend. “While properties across the U.S. continue to sell at record high prices, our latest data reveals that the breakneck pace of housing price growth has likely seen its peak and we expect it to decline in the coming months," Jeremy Sicklick, co-founder and CEO of HouseCanary, wrote in a recent commentary.   "Monthly single-family listing prices have plateaued since May, while closed prices continue to edge marginally higher on a month-over-month basis,” he notes in a recent report. “Additionally, the sale-to-list price ratio has fallen slightly from its peak in June, bolstering our view that home prices—while still remarkably high—are beginning to show signs of cooling.”

Even the characteristically ebullient NAR is now predicting that  prices will increase “at a slower pace” next year – 4.4 percent compared to the projected 2021 average of 14.1 percent.     

 Inventory Levels Still Low

New listings have increased.  Nearly 3.2 million new homes were listed for sale in the 12 months ending in August of this year, an increase of more than 11 percent over the same period of 2020    But the increase hasn’t been consistent in all price ranges, House Canary analysts point out.  High-end listings, between $600,000 and $1 million – increased by nearly 60 percent, but listings for homes priced between $200,000 and $400,000 increased by less than 3 percent and those below $200,000 declined by 16.7 percent, underscoring the challenges confronting first-time buyers. 

Inventories are increasing.  There were 1.32 million homes for sale at the end of July, a 7.3 percent increase over the June total ─ the second consecutive month-over-month gain and the highest level since last October for an index that has been moving consistently downward, according to the NAR.  But most of the inventory relief, again, has been concentrated at the high end of the market. The supply of homes priced below $500,000 has been declining steadily and remains below the year-ago level.  And despite those upper-end gains, the overall 1.3 month inventory of homes available for sale  at the end of July represented a record low.

“Nationally and in most local markets, homes sales volume remains at all-time highs while supply is far below historic norms,” Steve Gaenzler, senior vice president in charge of  Data and Analytics for  Radian, noted in a recent report. “Home prices are not showing any signs of softening or slowing their impressive gains of 2021,” he added. 

In Search of Normal

Demand, meanwhile, remains strong.  Although real estate agents are reporting fewer bidding wars among prospective buyers, homes listed for sale are selling quickly – averaging 23 days on market in July, according to RE/MAX and a bit higher (66 days) for Radian – both numbers in record low territory for the two companies.

“It is still a very swift, fast-moving market,” the NAR’s Yun observed, “but there is some indication that the market is less intensely heated now than before.”  There’s that ‘other hand’ again, and again.  “The market may be starting to cool slightly,“ Yun adds, “but at the moment there is not enough supply to match the demand from would-be buyers."

The mismatch between prospective buyers and homes for sale will continue to push price higher, leaving more first-time buyers peering into a market they can’t afford to enter and leaving analysts to wonder when what has been a wild market will return to normal.

“The housing market is less hectic than it was in early spring,” Redfin Chief Economist Daryl Fairweather told DS News, “but it is still far from typical.  “We are starting to trend in that direction,” he suggested, “but I don’t think the market will return to a fully typical state anytime soon.”