Nothing Wrong With Existing Home Sales


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 5.39 million.  This was slight increase from the previous month 5.35 million but down 1.5% year over year


Total existing-home sales rose 0.7% to a seasonally adjusted annual rate of 5.39 million in September from 5.35 million in August.


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Last month’s sales pace is 1.5% below a year ago and is the second slowest over the past year (behind August).

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For part of this year existing home sales were out performing, not under performing expectations.  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 instead of falling as I expected. Today’s report gives us one example of falling cash buyers, year over year.  I predicted cash buyers to make up 16%-19% of the market this year but cash buyers fell into that range only once.  The report today shows cash buyers to be 20% of the market.

First-time buyers were 29% of sales in September; Individual investors were 15%; All-cash sales were 20%; Distressed sales were 4%.

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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.


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From Doug Short:
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After 1996, the only time we have had 6 months’ supply in the housing market  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 today, the lack of selling equity is preventing would-be buyers from moving up. 

From Doug Short:


This report shows that existing home sales for 2017 look exactly as they should and as I predicted. We had slight growth in purchase applications and a higher than expected number of cash buyerso the total numbers look fine.

One note of caution, however When they (housing pundits) say that we lack  the appropriate number of construction workers to address the “record breaking demand”  for more homes to be builtremember that we actually have slightly more construction workers today  but fewer total housing starts than in the last cycle in the early part of this century.  

Construction Workers:

Last print here 6,911 (Thousands of Persons) October of 2000 6,814 ( Thousands of Persons)
From Fred:
Construction jobs October

Housing Starts:

Last total print here  1,127,000 and October 2000 1,549,000 
From Fred:
October Nominal home prices

Be mindful that purchase application data is still stuck at 1998 levels when we have over 154,000,000 people working, mortgage rates below 5% since early 2011 and we are enjoying a long economic and job expansionDemographics matter greatly for housing and we just didn’t have the right demographicfrom 2008-2019. However, in a few years we will have replacement buyers to battle with the real issue of housing affordability. 

From Calculated Risk:


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