The housing sector may have bucked this year’s downturn in asset prices, but the red-hot market is cooling off.

According to the National Association of Realtors, existing home sales fell by 2.4% month over month in April. That is the third-straight decline in existing home sales. Compared with one year ago, sales were down 5.9%.

Existing home sales are now at their lowest level since June 2020, though they’re still historically elevated. That could change, according to NAR chief economist Lawrence Yun. He noted that “higher home prices and sharply higher mortgage rates have reduced buyer activity,” while predicting more downside to come.

“It looks like more declines are imminent in the upcoming months, and we’ll likely return to the prepandemic home sales activity after the remarkable surge over the past two years,” he said.

On the bright side, Yun said “listed homes are still selling swiftly, and home prices are much higher than a year ago” with the national sales price up 14.8% to $391,200.

The economist explained that the current situation of falling sales and high prices—with buyers snapping up homes on the market quickly—is unusual.

It seems that some buyers have been priced out of the market due to high mortgage rates, while others are unaffected. All-cash sales accounted for about a quarter of all home sales in April, and Yun explained that buyers with short-tenure expectations could “opt for 5-year adjustable-rate mortgages,” which initially have lower rates than their fixed-rate counterparts.

Those two segments of buyers could keep upward pressure on home prices, even as their rate of growth is likely to slow. Through April, home prices have increased on a year-over-year basis for 122 consecutive months—a record streak.

Along with strong demand, constrained supply has been a significant factor in driving housing prices up. The NAR’s latest data showed that inventory levels are improving, but just barely.

“Total housing inventory at the end of April amounted to 1,030,000 units, up 10.8% from March and down 10.4% from one year ago. Unsold inventory sits at a 2.2-month supply at the current sales pace, up from 1.9 months in March and down from 2.3 months in April 2021,” the NAR said.

Housing-Related ETFs Struggle 

Unlike housing prices, housing-related ETFs have struggled mightily this year. Everything from the iShares Residential and Multisector Real Estate ETF (REZ) to the iShares U.S. Home Construction ETF (ITB) to the Hoya Capital Housing ETF (HOMZ) is lower this year, keying off the decline in homebuying activity rather than resilient home prices.

Year to date as of May 19, REZ was down by 16.4%; HOMZ was lower by 31.7%; and ITB  had lost 31.7%.  

 ITB has a direct focus on homebuilders, with two-thirds of its portfolio allocated to stocks in that category, like D.R. Horton Inc., Lennar Corp. and NVR Inc. Building products and home improvement retailer stocks are the next biggest groups in the ETF, making up about a quarter of the fund. Companies like TopBuild Corp. and Home Depot Inc. are included in that part of the portfolio.

REZ is a REIT ETF that is heavily allocated to residential REITs; about half of its portfolio is in that category, which includes REITs that rent out apartments and single-family homes. REITs are required by law to pay out 90% of their taxable income as dividends to shareholders.

Finally, HOMZ doesn’t fit the typical sector or industry classification mold. It uses a proprietary index that combines residential REITs (30% weighting) with homebuilders (30%) and home improvement companies (20%), as well as housing technology companies (20%). Zillow and Redfin are two companies included in the latter group.


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