2016 Existing Home Sales Report Card: Death Of The Low Inventory Myth

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Today the National Association of Realtors released its monthly existing home sales report,   Sales of existing homes were 5.61 million, the highest number of sales since February of 2007.

https://www.nar.realtor/news-releases/2016/12/existing-home-sales-forge-ahead-in-november

Total existing-home sales rose 0.7% to 5.61 million in November from 5.57 million in October.

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If you follow housing, you  probably have heard that low inventory is holding housing demand back.  This is a curious conclusion  when you consider that inventory levels are lower in 2016 but home sales are at cycle highs.

Unsold inventory is at a 4.0-month supply at the current sales pace, which is down from 4.3 months in October.

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If you take a historical view of the data you will see that we had lower demand back in 2014 (when existing homes sales went negative year over year) and inventory was higher.

From Fred
https://fred.stlouisfed.org/series/HOSSUPUSM673N

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As I have stated for years now, after 1996, when home prices deviated from historical norms, the U.S. hasn’t had a natural 6 month supply of  inventory, but monthly supply is still higher now than in the previous cycle.

From Fred
https://fred.stlouisfed.org/series/MSACSR

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Today, we are back to 1998 levels on the Mortgage purchase applications, so although inventory is low, it is sufficient for the current demand.   If anyone uses the word strong for housing, show them the chart below.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/12/mba-mortgage-applications-increase-in.html

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I give Existing Home Sales for 2016 an overall grade of  B+ 88% .

My prediction for total existing home sales was 5.43 million on the high end, with rising mortgage buyers and falling cash buyers. This is what happened in 2016. 2016 has the best internal demand data for the cycle, with cash buyers at the lowest levels of the cycle and mortgage buyers at the highest.

First-time buyers were 32% in November; Investors were 12%; All-cash sales were 21%; Distressed sales were 6%.

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Make no mistake, housing demand in general for 2016 has been very light especially considering that we are in the 8th year of the cycle with rates below 5% since early 2011. If it wasn’t for the above historical high levels of cash buyers in this cycle, existing home sales wouldn’t have too many prints over 4.5 million. By years 2020-2024 you will see better demand from mortgage buyers.  As depicted in the chart below,  since 1999 there is plenty of inventory for rising sales.  We just happen to be  “demand light”  in this cycle.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/21/existing-home-sales-continue-to-climb

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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