Whenever the existing home sales report misses expectations, like we saw today, we hear that the reason is because inventory is too low. I hate to break this news but we just had the best 2 month combined existing home sales print of the cycle in a non-seasonal buying period with housing inventory at record lows. Despite this, mortgage purchase applications are still at 1998 levels.
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’s report ended the year on a solid note with total 2017 existing home sales at 5,510,000. This number beats my expectations even though purchase applications showed one of the weakest year over year growth years in the last 20 years. Cash buyers didn’t fall in 2017 like I anticipated. In some of the months the percentage of cash buyers actually grew year over year. We don’t see much attention given to this fact, but if we continue to see an abnormal historical large percentage of the market made up of cash buyers in 2018 then this will help total existing home sales. For 2017 I expected 16%-19% of the market to be made up of cash buyers. The percentage was higher than that in all but one month of 2017. For December of 2017, cash buyers made up 20% of sales.
More on my 2018 Housing & Economic predictions can be found here:
As we can see in the chart below, we ended the year solid even with inventory hitting record low levels. It looks like people are staying in their homes longer than ever and the housing tenure data is proving that fact.
A key thing to remember is that even with the revision lower and the missed sales estimate, the 2 month sales print came in at 5,675,000 despite the record low inventory. This is the best 2 month average print we have had in this cycle.
As you can see in the chart above, inventory rose going into the spring of 2017 and it didn’t pull forward much demand growth last year. It will be interesting if we see that action once again now that mortgage rates are higher.
The purchase application data report today showed purchase applications grew 7% year over year but we need growth to be 20% year over year, especially if cash buyers fall in 2018. In 2016 we saw 25% plus year over year growth in the heat months, starting from the 2nd week of January to the first week of May. Last year we saw negative 1% – 10% growth year over year. We have to be mindful that we are working from 1998 levels even with this long economic expansion, the lowest mortgage rates cycle ever and over 154,000,000 people working. Back in 1998, mortgage rates were a lot higher and we had 24 million less Americans working back then.
From Calculated Risk:
All in all, the report for December shows existing home sales beating expectations. If we see any prints above 5,530,000 million in 2018, then the market is still outperforming. With the help from historical high levels of cash buyers and slow-growing purchase application data this could be the case in 2018, just like it was for 2017.
For more on today’s existing home sales report:
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