In my 2017 Housing Prediction article published in December 2016, I wrote this regarding 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.”
Today, the NAR reported that existing home sales were down to a seasonally adjusted annual rate of 5.35 million. This was a miss compared to the expectations of most analysts.
Existing-home sales retreated 1.7% to a seasonally adjusted annual rate of 5.35 million in August from 5.44 million in July.
The existing home sales report from the NAR can be found here:
For some part this year existing home sales were out performing this year, not under performing. The earlier better-than-expected performance is partially due to an increase in the number of cash buyers in the market, a number that has been growing year over year in some of the reports, not falling as I was expecting. Today’s report is one example of this trend in 2017.
First-time buyers were 31% of sales in August; Individual investors were 15%; All-cash sales were 20%; Distressed sales were 4%.
I expected cash sales to fall to around 16%-19% of the total market. Instead we have seen a lot more prints this year with cash buyers making up 20% plus of the total market. Mortgage purchase application data rate of growth has slowed noticeably this year but still growing to cycle highs. For the next 2 reports, look for sales to be negatively impacted by the hurricanes Harvey and Irma.
Housing inventory in this cycle hit a cycle low in January 2017 when existing home sales had a cycle high print. Inventory has risen since January but demand hasn’t. The inventory numbers, year over year are getting closer to be on par with each other.
Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.5 months a year ago.
After 1996, the only time we have had 6 months’ supply was during the housing bust years of 2006-2011. At that time forced selling into a market with weaker demographics caused inventory to climb. Since 1996, homes prices have deviated from historical norms in the upward direction. But the lack of selling equity is preventing would-be buyers from moving up. Lack of equity has been a stumbling block for higher sales in this economic cycle.
In general though, existing home sales are exactly where they should be, getting a little extra push from the larger percentage of cash buyers. I wouldn’t read too much into the expected downturn in the next two reports since we have never had to deal with back to back hurricanes in two highly populated areas. Expect some economic dislocation to occur. The seasonal downturn has also kicked in so relax and bring out the pumpkin spice latte.
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