Implications: Existing home sales were better than expected in July, rising for the second month in a row due to modest gains in the supply of homes for sale and very strong demand. The best news is that there are reasons to believe the worst of the inventory crunch is behind us. New home construction remains strong, and now that vaccines are widely available, it's likely that more sellers will feel comfortable listing their homes. Both of these factors probably contributed to the 7.3% increase in inventories in July, which was also the fifth consecutive month of gains. Though inventories are still down 12.0% from a year ago (the most accurate measure for inventories given the seasonality of the data) that year-to-year rate of decline is slowing. The months' supply of existing homes for sale (how long it would take to sell today's inventory at the current sales pace) rose to 2.6 in July from June's reading of 2.5, though these readings still remain near record lows. Despite the ongoing shortage of listings, there is still significant pent-up demand from the pandemic, with buyer urgency so strong in July that 89% of the existing homes sold were on the market for less than a month. The combination of strong demand and sparse supply has pushed median prices up 17.8% in the past year, but the good news is that price gains have been decelerating since hitting a year-to-year gain of 23.6% in May. As more inventory becomes available and price gains continue to moderate, we expect sales in 2021 to ultimately post the best year since 2006. Why? First, a trend toward work-from-home is likely to remain in place even as pandemic-related measures ease. That means people who were previously tied to specific locations, typically in urban areas, will have more flexibility, making more space in the suburbs an attractive proposition. Finally, Millennials are now the largest living generation in the US and have begun to enter the housing market in force, making up over 50% of new mortgage issuance for the first time in 2019. This represents a demographic tailwind for sales not only in 2021, but for the foreseeable future.
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