Existing Home Sales: The Good, The Bad & The Ugly

PROFILE PIC

If you look at my Twitter post today, before the existing home sales came out, I predicted 5.35 million in existing home sales.  That is exactly what was achieved. However the expected number (NAR and others) was 5.25 million.
For the last two months, pending sales were positive. Also the purchase application numbers from 2 months ago showed growth. Therefore I expected 5.27 million in SAARs last month but we actually achieved only 5.05 in SAARs. Last months
number seemed off to me for those reasons

Irvine, CA

5.35

5.35

So what is the real story on this number

#1  The Good

THE GOOD

NAR Quote: “All-cash sales were 24 percent of transactions in May for the third straight month and are down considerably from a year ago (32 percent).

Finally we have real evidence in 2015 that the cash buyer is falling as a percentage of the market with sales rising year over year. In a real recovery this would have happened years ago. However, in this cycle we didn’t have the right  Incomes, Liquid Assets or  Demographics  for this to happen.  The decrease in cash buyers should be talked about more as this indicates a return to a more normal market.

# 2 The Bad

The BAD
NAR Quote: “The percent share of first-time buyers rose to 32% in May, up from 30% in April and matching the highest share since September 2012.”

Don’t believe the hype…. as Public Enemy once said.  Thirty two percent first time home buyer number is still trending at the worst levels ever recorded as a percentage of first time home buyers in the market place. Add to this fact that this is year 7 of the economic cycle with rates at 4%.

Potential first time home buyers need to Rent, Date, Mate, and Marry before they will be ready to buy.  3.5 to 6 years after marriage with dual incomes, college educated Americans having kids still works.

This model of mine still is in play. However, to get more buyers in this group with the demographic trends we have, we are looking at 2020-2024  time frame.

3. The Ugly
The Ugly

Now back to context of total existing home sales

From Doug Short
http://www.advisorperspectives.com/dshort/updates/Existing-Home-Sales.php

Home-Sales-Existing-Growth (5)

Not much going on here considering population growth of over 40 million since the year 2000 when
Interest rates were at 8%

So, 7 years into the economic cycle, rates below 5% since early 2011 and a high level of cash buyers has gotten us this
headline number of 2.3% SAARS growth and a negative -10.5% adjusted to population number.

So, the reality if you believe in math, facts and data,  this housing cycle on the demand side has been booming from the rich and those renting. When 2020-2024 time frame comes and after the next recession, the demand curve will look so much better due to demographics. However, 7 years into the cycle and all the hype of housing nirvana was really on the renting side of the equation not the ownership side of the equation from main street America.

Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988