Condo Sales Drop to Lowest in the Data, Supply Highest since Housing Bust. Single-Family Home Sales Below 1995, Supply Highest since 2016

The U.S. housing market is undergoing significant demand destruction, evidenced by May condo sales hitting historic lows and supply spiking to levels not seen since the 2012 housing bust, while single-family home sales remain near 1995 levels with supply at 2016 highs. This widespread collapse in sales and rising inventory is attributed to prior price explosions exceeding market affordability. Consequently, year-over-year median price gains for both segments have dramatically narrowed to under 1.5% nationally, with many major cities already experiencing 8-23% price declines from their peaks, signaling a broad market correction.

Analysis

The U.S. housing market is undergoing a severe correction driven by significant demand destruction due to price-affordability constraints. In May, condominium sales fell to a record low, matching the May 2020 lockdown period and representing a 38% decline from May 2019 levels. Concurrently, condo inventory surged to a 6.7-month supply, the highest level recorded since the housing bust in July 2012. The single-family home (SFH) segment shows similar stress, with sales volumes remaining at historic lows comparable to 1995, while supply has spiked to 4.6 months, a high not seen since July 2016. This dynamic of collapsing sales amidst rising inventory directly refutes the prior narrative of a housing shortage, pointing instead to prices that have exceeded market tolerance. This is reflected in price trends, where year-over-year median price gains have eroded to just 0.7% for condos and 1.3% for SFHs nationally. More significantly, numerous major metropolitan areas are already experiencing substantial price declines, with drops ranging from 8% to 23% from their peaks, signaling a broad-based market downturn is actively underway.

Key Decisions for Investors

• Given the clear evidence of demand destruction and soaring inventory, investors should adopt a cautious to bearish stance on assets with direct exposure to U.S. residential real estate, including homebuilders and residential REITs.
• The data indicates a more pronounced downturn in the condominium market, suggesting that portfolios with concentrated exposure to urban multi-family developments face heightened risk compared to the single-family home sector.
• Investors should disregard the 'housing shortage' thesis and instead focus on affordability metrics and the pace of price declines in bellwether markets like Austin and Oakland as key indicators for gauging the depth of the correction and the potential for a future market bottom.
• Monitor inventory levels closely; the continued build-up of supply in the face of stagnant sales is a leading indicator that further price concessions will be necessary to clear the market, creating continued headwinds for the sector.