Existing Home Sales Look Fine


In my 2018 Economic & Housing prediction article I was looking for flat to negative growth for existing home sales.

“For 2018, I anticipate existing home sales to be in the range of  5.27 – 5.53 million units.”


In a recent interview on the David Lykken Show I discussed that we still might have too much hype on housing demand

Today’s NAR report showed a decline in sales last month.

“Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, sank 3.2 percent in January to a seasonally adjusted annual rate of 5.38 million from a downwardly revised 5.56 million in December 2017. After last month’s decline, sales are 4.8 percent below a year ago (largest annual decline since August 2014 at 5.5 percent) and at their slowest pace since last September (5.37 million).”


Regarding the data in this report, Lawrence Yun, NAR chief economist, said

“the utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month.”

This is the rote response we typically  hear from the housing community that refuse to recognize the elephant in the room…. Housing tenure has doubled in this cycle.  People are staying in their homes longer than ever. The NAR and the national media blame the month to month decline entirely on low inventory but seem not to notice when the data contradicts this conclusion.  Sales have been highest in the cycle when inventory was low. To this point, we just had the best existing home sales prints of the cycle when inventory was at the lowest.

From Doug Short:

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From Calculated Risk:
From Attom Data Solutions: ( A good website to get  housing data)


Reality is contradicting another widely held myth in housing.  A number of salespeople who represent themselves as housing analysts,  have been saying that current demand for housing  is “record breaking.”

But in truth, demand is at 1998 levels when I was a mere 22 years of age (that was a long time ago, folks). Since mortgage demand has been relatively mild in this cycle (to put it kindly) I wouldn’t be too concerned about the dip in existing home sales. We don’t have a record-breaking boom where the risk of an over investment thesis is currently in place.

From Calculated Risk.


Purchase applications have held up well with higher interest rates and home prices. In 2014, inventory rose, sales went negative and purchase application were down 20% year over year and new home sales had the biggest miss from sales estimates ever working from a low bar of sales and low mortgage rates.

In the heat months of this year we have had prints of plus 8%, 4% and 3% year over year.  Growth is not gang-busters but it is modest and respectable — especially considering that last year during the heat months purchase applications were negative 1% -10% year over year.  This year we are working from higher sales, higher home prices and higher rates, so the data is holding up well. The reporting on housing tends to fall prey to the exuberant hyperbole of its sales people (read analysts). Then when that hype gets knocked down by the data from a single month, all hell breaks loose and no one knows what to think.

From 2008 through 2019 we do not and will not have the demographics or demand for a strong housing cycle.  In  the years 2020-2024, however, demographics for housing will improve and we may even reach 1,500,000 total housing starts. Until then, ignore the salespeople and remember that housing is more expensive this year than last and context is key to understanding sales trends as we are heading toward a record in terms of the length of this economic expansion.

Also of note in today’s report is that cash buyers fell YoY, but are still high for this stage of the cycle.  I am looking for 16%-19% cash buyers this year.  This would be a decline from last year, when we saw 20% + trend cash buyers as a % of sales. If cash buyers fall below 20% of the total market then purchase applications will need to make up the difference in order to still see growth in the market. This means that 3%-8% year over year growth in purchase application isn’t enough. You need the data to come in like what we saw in 2016 when purchase applications were up 25% plus in the heat months.


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The real test for housing demand for 2018 can be seen in new home sales.  Here again, analysts are telling builders that the demand is out there and they should build more homes.


Builders beware!

For new homes sales in 2018 I am looking for 2%-5% growth, because sales are still low.
I mean sales are really still low in context to over 154,000,000 people working, having the longest job expansion on record, the lowest interest rate curve on record with soon to be the longest economic expansion on record. Also, builders are trying to add in smaller homes and if this trend continues again in 2018 we could see higher than 5% growth.

However, if sales for new homes go negative year over year due to higher rates, then caution on the side of builders to keep to slow and steady growth will be the correct call.  As always with all housing data context is key and the builders were always correct to go slow and steady in this cycle coming off the massive over investment in the last housing cycle.

From Doug Short

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As always, monthly supply in this cycle has been higher every month than in the previous cycle outside of one month in June of 2000 for new homes.

From Fred:
JULY 2018 new home supply

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 https://www.facebook.com/Logan.Mohtashami

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