Before the year started my outlook for existing home sales was that growth in this sector would be flat to negative.
“For 2018, I anticipate existing home sales to be in the range of 5.27 – 5.53 million units. If we end the year showing negative growth, with rising inventory once again, don’t worry, be happy. This would be “normal” especially when purchase applications are still trying to party like it is 1999. In years 2020-2024 we will have a much better demographic profile than we had from 2008-2019 for mortgage buyers.”
My call for the 10 year yield was that it would stay in my channel of 1.60% -3% and have an inversion at some time in 2018. Mortgage rates are near the higher end of this now, going into spring, has got some people spooked.
Every single week this year, we have had positive growth in purchase application data but some people are still trying to put a bad spin on this. When the taper spike happened in 2013, rates shot up and this had a negative effect on the rate of growth. In 2014, even with a low bar set the previous year, existing home sales and mortgage purchase applications were negative, year over year.
So far this year we have no negative purchase application prints. Even if we get some negative prints in the coming weeks, the housing market is holding up a lot better than it was in 2014.
Remember, we are working from a higher level of sales, home prices and higher rates all together and demand is holding up.
From Calculated Risk:
Is this anything to write home about? Last year we had -1% – 10% growth purchase applications and existing home sales still didn’t do much. In fact, the number of cash buyers was flat to rising on a year over year basis on some reports which was largely responsible for why we finished the year flat to slightly higher instead of negative.
So far this year we have had growth in purchase applications between 1% -8%, year over year. While that might sound good it isn’t good enough to grow demand. In 2016 we had 25% plus growth in the heat months (after the 2nd week of Jan to the first week of May). This time period sets the pace for the entire year. We would need to see 20% plus growth, year over year, during the heat months to really see something positive. So far we aren’t seeing this kind of growth.
Having said that, I don’t think housing inflation is impacting demand like it did in 2014. I say this as someone who isn’t looking for growth in sales this year, too.
If purchase application were down 20% year over year, like we saw in 2014, then we would have a case for housing inflation impacting demand in a big way. But, we are only at 1998 levels in purchase applications, with over 155,000,000 people working, mortgage rates under 5% since early 2011 and the longest job expansion ever recorded in U.S. history, and soon to be the longest economic expansion in U.S. history. Context is everything. If the market underperform in net demand then it is not exposed to risks of over heating. Think, for example how three straight years of 17 million in-car sales has effected the current rate of sales. It is most likely that we end the year lower on a year over year basis for car sales but it isn’t the end of the world.
Ignore the headline drama and take a more sophiscated view of the data. The market is showing slow and steady demand, nothing too hot and nothing too cold. A more interesting market place to observe if higher mortgage rates are impacting demand would be new home sales sector since is a 90% + mortgage market.
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
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