In July, existing US home sales reached 4.01 million, surpassing expectations of 3.92 million. This marks a 2% increase from the previous month’s 3.93 million and a decline from last month’s 2.7% decrease. Inventories stood at 4.6 months, slightly less than the previous month’s 4.7 months, but showed a 15.7% increase from the previous year. The median price for homes increased to $422,400, which signifies the 25th consecutive month of annual price growth.
Sales of single-family homes increased by 2% to 3.64 million, with the median home price reaching $428,500. For condominiums and co-ops, there was a 2.8% increase in monthly sales, although they fell 2.6% year-over-year, with the median price at $362,600. Regionally, the Northeast experienced an 8.7% sales increase, while the Midwest saw a 1.1% decline month-over-month. The South recorded a 2.2% increase, while the West had a 1.4% rise in monthly sales.
Market Dynamics
Properties remained on the market for a median of 28 days. First-time homebuyer sales constituted 28%, and 31% of transactions were cash sales. Individual investors and second-home buyers made up 20% of transactions, with distressed sales accounting for 2%.
The better-than-expected housing sales number suggests the economy is holding up despite higher interest rates. This resilience likely pushes back the Federal Reserve’s timeline for any potential rate cuts. We are now seeing futures markets, which had priced in a 25% chance of a rate cut by year-end, pull back those odds to below 15%.
Given this, we should consider positioning for a “higher for longer” interest rate environment. This could involve buying puts on treasury bond ETFs or selling short-term interest rate futures to hedge against rising yields. This echoes the pattern we saw back in 2023, when strong economic data repeatedly led to a sell-off in the bond market.
Investment Strategies
The drop in first-time homebuyers to 28% signals an affordability problem, which could be a headwind for homebuilder stocks. While overall demand seems firm, builders may need to continue offering financing incentives, potentially squeezing the profit margins we saw compress last quarter. This suggests a cautious stance, perhaps using covered calls on homebuilder stocks to generate income while limiting upside.
The surge in cash transactions to 31% and investor purchases to 20% shows the market is being driven by rate-insensitive buyers. With the average 30-year mortgage rate holding around 6.8% according to the latest Freddie Mac data, the average wage-earning buyer is being sidelined. This creates a fragile foundation for the housing market that could be vulnerable if investor sentiment shifts.
We see a clear regional divergence, with the Northeast showing strength while the West continues to lag, with sales down 4.0% year-over-year. This split suggests a potential pairs trade, such as going long on REITs with heavy Northeast exposure while simultaneously shorting those concentrated on the West Coast. This strategy can hedge against broader market moves while capitalizing on this specific regional trend.
