The housing market is outperforming my expectation for exiting home sales this year. I wasn’t expecting much in the way of growth this year because demographics for home buying are still not strong enough and would-be move up buyers still don’t have the equity to sell and move up.
I expected 5,450,000 existing home to be sold , and minimal growth in purchase applications. So far this year purchase applications have grown (year over year) between negative 1% to 9% , which is the weakest YoY growth we have seen in years excluding 2014 which showed negative growth. I expected cash buyer to make up less of the total buyers this year, coming in around 16% -19%. But this hasn’t happened. In fact, cash buyers have been pushing over 20% of total buyers in every report.
Despite the fact that some of our favorite housing experts are still beating the “low inventory” drum, at some point they will need to admit that low inventory can’t be the problem if sales are rising, and mortgage demand rising but still only back to the low levels of 1998. It is low demand, not low inventory! Lack of affordability has created the tenure of housing (length of time folks stay in their homes) to get to all time highs.
From Calculated Risk
Today existing home sales are at cycle highs with inventory at cycle lows ( and rising from the lower levels this year) yet our “experts continue with their token line that the low numbers are due to supply, not demand.
Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.6 months a year ago.
As you can see in the chart above, existing home sales hit a cycle high of 5,690,000 units in January of this year. Inventory at that time was at cycle lows. Today, the National Association Of Realtors reported existing home sales were 5,570,000, a miss from estimates of 5,600,000. So we have higher inventory than earlier in the year and despite that fact that existing home sales came in lower than in January.
Total existing-home sales dipped 2.3% to 5.57 million in April from 5.70 million in March.
The median sales price for existing homes was higher in this report. Prices will continue to have legs as long as inventory stays below 6 months which has been the case post 1996 outside the housing bust years of 2006-2011.
The median existing-home price in April was $244,800, up 6.0% from April 2016 ($230,900).
Internal data looked better in this report, with a lower percentage of cash buyers and more first time home buyers.
First-time buyers were 34% of sales in April; Investors were 15%; All-cash sales were 21% ; Distressed sales were 5%.
All in all, the housing market looks fine! I know new home sales, existing home sales and housing starts all whiffed this month but this is only from expectations. The cycle has looked the same for years and my theme of slow and steady has been a more mature, appropriate theme than the record breaking thesis some people have been trying to push this year.
(Record Breaking Demand)
Remember this fact, (that everyone in the housing community leaves out): If you didn’t still have record breaking cash buyers in housing in this cycle, then you would never see one print over 5,000,000 because mortgage demand is back to 1998 levels .
From Doug Short:
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. 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