Today the National Association of Realtors (NAR), reported that monthly existing homes sales declined 0.9% , from 5.38 million in July to 5.33 million in August..
For 2016, I predicted that existing home sales would be in a range of 5.13 to 5.43 million homes, with an increase in the percentage of mortgage buyers and a decrease in cash buyers.
As I predicted, mortgage buyers are up and cash buyers are down in 2016. Because one sector of demand is falling (cash buyers), total growth is impeded. Mortgage buyers are not yet making up the difference for much stronger growth.
It is lack of mortgage demand, not low inventory or tight lending that is holding down housing sales. Purchase applications are at cycle highs but still only back to 1998 levels. Since 2010, I have been saying that this cycle will simply not have enough qualified home buyers, once you exclude cash buyers, to have a real recovery in demand., and this remains the case.
From Calculated Risk:
With that said, home sales look solid this year compared to earlier years. We have more mortgage buyers, falling cash buyers and first time home buyers are trending slightly higher. So, we see no negative trends in the data that matter.
1st-time buyers were 31% in August; Investors were 13%; All-cash sales were 22%; Distressed sales were 5%.
Purchase applications have shown a lower rate of growth in the last few weeks, compared to the rest of the year. We saw solid growth of 25% + year over year, in the heat months, (2nd week of Jan to the first week of May), but now the rate of growth has slowed. The missing gap (non-heat month) buyers are why existing home sales growth is limited this year.
All is all, we are experiencing a positive year for both new and existing home sales, even if existing home sales don’t hit 5,300,000 number of last year. The quality of the demand is better this year than last.Seasonality of these metrics is starting to take it tolls so time to think about good books and museum visits instead (or football if you are a meathead like I am.)
One final note: Lack of affordability is a natural inventory suppressant. There are no more fake,exotic debt loans to artificially boost housing affordability anymore. Everyone who gets a loan has to earn it. What no body wants to talk about is that if you use the outdated affordability metric, a seller would require at least 28%-33% equity in order to pay transaction costs and have 20% down to move up to a bigger home. That is a conservative view of the equity needed. Lack of equity is preventing many would-be move up buyers from putting their homes on the market and thus limiting the inventory of starter homes.
With that said, inventory levels are good enough for sales to grow if the demand is present. 2016 existing home sales are at cycle highs because demand is better than the previous years even with inventory levels lower!
From Calculated Risk:
“Don’t Over Think This One”
More on this subject here.
I will be speaking at 2016 Americatalyst: Fast Forward,October 30 – November 1st in Austin, Texas.
My panel will be called WITHERING HEIGHTS: House and Rent Price Projections and will include these speakers.
TONI MOSS, CEO, AMERICATALYST LLC and EUROCATALYST BV
TIM SKEET, Senior Advisor, INTERNATIONAL CAPITAL MARKETS ASSOCIATION | ICMA
DOUG BENDT, SVP of Research and Product Development, RENTRANGE
MARK FLEMING, SVP and Chief Economist, FIRST AMERICAN FINANCIAL CORPORATION
LOGAN MOHTASHAMI, Senior Loan Manager, AMC LENDING GROUP
ALLAN WEISS, Founder and Chief Executive Officer, WEISS RESIDENTIAL RESEARCH
Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami