Bloomberg Financial Interview: Low Inventory Myth Crushed By Existing Home Sales

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Today I gave a interview on Bloomberg Financial to talk about existing home sales and the state of the U.S. housing market.

My portion starts at the 22 minute mark.

http://www.bloomberg.com/news/audio/2016-11-22/p-l-how-do-we-replace-obamacare-with-something-that-works

In the interview I stressed the fact that low inventory and tight lending are not  the causes of the soft demand in housing.  Existing home sales hit cycle highs today, inventory is down year over year but mortgage purchase application are at cycle highs, back to 1998 levels. Move up buying is limited due to affordability, but there are plenty of homes out there to buy.   This article provides more background on this economic dynamic:

https://loganmohtashami.com/2016/04/08/low-housing-inventory-lie-still-lives-on/

A. Existing Home Sales cycle high

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/11/22/existing-home-sales-jump-again-in-october

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B. Mortgage demand is at cycle highs, back to only 1998 levels.

From Calculated Risk: 
http://www.calculatedriskblog.com/2016/11/mba-mortgage-applications-decrease-in_16.html

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The Months of Supply is higher now from 2012-2016 than in any period 1999-2005. However, mortgage demand has only hit 1998 levels.  If we had more demand we would have more supply in an up cycle, so it might take a U.S. recession to get us to over 6 months supply. This cycle is very long.  By mid-2019 we will have experienced a record in terms of length of expansion.

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Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.4 months in September.

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First time we hit 6 months supply post 1996 when prices started to deviate from historical norms was February of 2006.  This was at the peak of  speculation demand and the start of the housing bust.  We are not a natural 6 month inventory country, post 1996.

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Housing has changed since  1996 due to price increases that has deviated from historical norms. The ability to move up and release more supply to the market is limited. Some of this is due to investors buying up distress properties.

From Calculated Risk :
http://www.calculatedriskblog.com/2016/10/case-shiller-national-house-price-index.html

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Adjusting to inflation, prices are not near the housing bubble peak. We adjust to inflation on all other data points but seem to forget to do this for housing prices. Still you can see, even with the adjusted to inflation metrics, we have deviated from historical norm

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Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan 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