Since 2010, housing analysts have put forth an unrealistic thesis on unit sales demand from mortgage buyers . Doubling down on the error, they then blame their missed estimates on factors such as tight lending and low inventory instead of demographics and affordability.
To this point, in today’s Existing Home Sales report, we see that existing home sales hit a cycle high print in January right when inventory hit a cycle low. Inventory has risen since January but not demand.
In my 2017 Housing Prediction article I predicted this for a existing home sales:
“… I expect 2017 to look much like 2016 in terms of existing home sales. We will eventually see a push in demand driven by changes in demographics but that is still a few years away. For 2017, I predict existing home sales to come in around 5.15 to 5.45 million. Even if 2017 finishes with negative growth, this will not be cause to worry. Our path is slow until demographics get better.”
This prediction has pretty much played out for the year expect that we have had more cash buyers as a percentage of the market then I expected. I predicted we would see 16%-19% cash buyers this year and so far we have seen a higher percentage of cash buyers except or the last two reports which have moved lower to 18% & 19%. We have had 20% + cash buyers in recent reports and in some case we had year over year growth, not the decline I was anticipating.
Below we can see that we hit a cycle high in demand for existing home sales, right when inventory hit a cycle low. Since January of 2017, inventory has been rising but demand not as much into a stronger seasonal time frame for existing home sales.
From Doug Short:
Unsold inventory at 4.2-month supply at the current sales pace, which is down from 4.8 months a yr ago
After 1996, the the U.S. housing market has not had 6 month inventory for either new or existing homes outside the housing bust years of 2006-2011. The higher inventory in those years were due to forced selling outside of a lack of demand. The tenure of housing (time home owners stay in their homes) is at an all time high. The increased tenure is likely due to a lack of equity to move up. Some analysts say that boomers aren’t downsizing in scale and this is true, but it doesn’t explain the below 6 months inventory from 1996-2005. Low inventory and the long tenure of homeowners are both due to a 20 year long deviation in home prices from historical norms, even with the massive over building we did from 1994-2006.
Even though this print is below the 5,450,000 line that was the peak of my total existing sales call, it’s a solid report and the year is still out performing my expectation because cash buyers have been higher.
More on the report from the NAR here:
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