2016 Existing Home Sales Destroys Low Inventory Myth

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Today the National Association of Realtors reported that existing home sales rose over 3 percent to nearly 5.5 million in September up from 5.3 million in August.

http://www.realtor.org/news-releases/2016/10/first-time-buyers-steer-existing-home-sales-higher-in-september

Total existing-home sales hiked 3.2% to 5.47 million in September from 5.30 million in August.

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First-time buyers were 34% of sales in September; investors were 14%; all-cash sales were 21%; and distressed sales were 4%.

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The median existing-home price in September was $234,200, up 5.6% from September 2015 ($221,700).

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This means existing home sales are at cycle highs, with nominal prices near or at the housing bubble peak. We also have the highest percentage of mortgage buyers (as opposed to cash buyers) in this cycle.

These data should lay to rest the ideas that tight lending and low inventory are holding back the market, a thesis being touted by some of our so-called experts. Today, mortgage demand is back to 1998 levels and demand facilitates housing mobility or turnover.
From Calculated Risk
http://www.calculatedriskblog.com/2016/10/mba-mortgage-applications-slightly.html

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Let me give you a good example:

Months of inventory hit a recent multiyear high back in 2014, almost 6 months.

What happened in 2014?  Taper spike lead the 10 year to go from 1.60% to 3.04% and pushed mortgage rates to 4.5%. 2014 also was a negative growth year from the previous year in term of existing home sales.  Even with higher inventory supply, demand was weaker then. Today inventory is lower than 2014 but demand is higher and leading to highest level of sales in this cycle. This low inventory thesis is a false narrative discussion

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If demand was stronger,  move up buyers would move up giving more supply to first time home buyers. This is one economic scenario where “trickle-down” actually works.

In less than 2 weeks I will be at the 2016 Americatalyst: Fast Forward conference :http://www.americatalyst.com/content/2016-americatalyst-fast-forward

One of the main ideas I would like to convey there is that the dual demons of  tight lending and low inventory have no power over the housing market. We trotted out these two old hags as excuses for poor demand long enough, when the real motivators and/or suppressors of the housing market  are demographics and affordability demand curve economics.

2016 is almost over and it hasn’t been a bad year for housing.   The facts are that home sales are at cycle highs with the highest mortgage demand in this cycle and the lowest demand from cash buyers.  But demand hasn’t breached 21st century levels in terms of the mortgage purchase application data. If cash buyers weren’t 11%-20% above historical norms then existing home sales wouldn’t have too many prints above 4.5 million. 2016 housing is about demand not tight lending or low inventory.

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