Existing home sales fell in July to their lowest level since 2020 amid elevated mortgage rates as the Federal Reserve continued to hike interest rates. Sales dropped 5.9% to 4.81 million annualized, marking the sixth straight month of market contraction, the National Association of Realtors reported on Thursday.
The driving force for such a sharp drop continued to be the slump in housing demand as buyers stayed off the market due to the combination of high mortgage rates and elevated prices. Except for some months in 2020 during the earlier part of the COVID-19 pandemic, existing home sales were the lowest since 2015.
As a result, median home prices fell for the first time since September to $403,800 in July from $413,800 in June. However, prices remained sky-high compared to the pre-pandemic level in 2019 of around $270,000 on average.
That suggests that despite the nosedive in existing home sales, prices will not drop as hard but they will remain a sticky component of inflation in the coming months.
We do not expect the Fed to pivot from its rate-hiking course any time soon, and therefore believe that there is still room for existing home sales to fall further after almost two years of running hot.
Initial jobless claims
In a separate report from the Bureau of Labor Statistics, initial jobless claims held steady last week as the labor market remained tight. New claims were down slightly by 2,000 to 250,000 for the week ending Aug. 13, following a sizable downward revision of 10,000 new claims applied to the prior week.
Last week’s modest decline, together with the recent slowdown in the number of new filings for jobless benefits, suggests that the rate of increases in layoffs might not as bad as expected, especially with several significant downward revisions to the series in the last couple of weeks.
The four-week moving average fell for the first time since early April, breaking the short-term trend, while the 13-week moving average—our preferred measure—began to flatten out, up only 2,000 last week.
The driving factor for the moderation of layoffs continued to be excess labor demand, which has been at a near record high. Despite adding more than 200,000 new claims every week, the number of continuing claims only inched up 7,000 for the week ending Aug. 6. That implies workers who claimed unemployment benefits do not stay unemployed for too long, as job vacancies are plentiful.
Strong labor demand—some analysts contend businesses have been hoarding talent—will keep the increases in initial jobless claims, a proxy for layoffs, relatively low through the end of the year. We do not expect new claims numbers to reach the recession-prone level of around 350,000 to 400,000 until the second half of 2023.
