Existing home sales fall – The Daily Tearsheet

Vital Statistics:

Stocks are higher this morning on optimism over trade deals. Bonds and MBS are down.

Following on the heels of a deal with Japan, the EU and the US appear to be close to a framework as well. This should help prevent the tit-for-tat trade spats, which add to uncertainty in the markets.

Existing home sales fell 2.7% to a seasonally adjusted annual rate of 3.93 million units. On an annual basis, existing home sales were flat.

“The record high median home price highlights how American homeowners’ wealth continues to grow—a benefit of homeownership. The average homeowner’s wealth has expanded by $140,900 over the past five years,” said NAR Chief Economist Lawrence Yun.

“Multiple years of undersupply are driving the record high home price. Home construction continues to lag population growth. This is holding back first-time home buyers from entering the market. More supply is needed to increase the share of first-time homebuyers in the coming years even though some markets appear to have a temporary oversupply at the moment.”

“High mortgage rates are causing home sales to remain stuck at cyclical lows. If the average mortgage rates were to decline to 6%, our scenario analysis suggests an additional 160,000 renters becoming first-time homeowners and elevated sales activity from existing homeowners,” Dr. Yun continued.

“Expanding participation in the housing market will increase the mobility of the workforce and drive economic growth. If mortgage rates decrease in the second half of this year, expect home sales to increase across the country due to strong income growth, healthy inventory, and a record-high number of jobs.”

The supply situation has improved, and the market is more in balance. Inventory hit 1.36 million units, the highest since 2019. That said, inventory is still roughly 21% below pre-pandemic levels. “The shift to a ‘neutral’ market is significant, but it shouldn’t be mistaken for a universally cool or easy market for buyers,” Zillow Senior Economist Kara Ng said. “While negotiating power is more balanced, the affordability crisis remains a high barrier to entry, especially for first-time buyers. Until we see a more meaningful improvement in purchasing power, this newfound balance will primarily benefit more well-off buyers.”

The Trump Administration is considering reducing or eliminating capital gains taxes on home sales in order to boost the housing market. Currently, people selling their primary residence can exclude the first $250,000 from capital gains taxes ($500,000 for couples) but this number is not tied to inflation and hasn’t been updated since introduced in 1997.

Note this would only affect primary residences – investors will still pay the tax.

The Trump Administration has a long list of candidates to replace Jerome Powell. Treasury Secretary Scott Bessent said that the Administration is in no hurry to announce a replacement. Some of the names being considered are Kevin Warsh, Chris Waller, and Kevin Hassett.

In an interview, Scott Bessent reiterated the statement that Trump has no intentions of firing Jerome Powell.