Low Inventory Boost Existing Home Sales


Last month when home sales missed estimates,  we heard the howls that an inventory crisis was preventing sales from rising, even though sales for the previous months were the highest in the cycle with inventory at cycle lows.  All of sudden the despair ended with a year over year growth print while inventory down year over year. Today the NAR reported a year over year growth in sales of 1.1% to 5,540,000 units.

It really is shocking how that works: Better demand = A rise in sales =  Lower inventory!

“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.”


Today the NAR reported a number just above that.

NAR:  https://www.nar.realtor/newsroom/existing-home-sales-rebound-30-percent-in-february

 Total existing-home sales grew 3.0% to a seasonally adjusted annual rate of 5.54 million in February from 5.38 million in January.

The two-month trend of 5,460,000 looks exactly right.  I expected flat to negative growth because I expected cash buyers would fall to 16%-19%. The percentage of cash buyers haven’t fallen to those levels yet, even though it has been negative year over year so far.

 First-time buyers were 29% of sales in February; Investors purchased 15% of homes; All-cash sales were 24% of transactions; Distressed sales were 4% of sales.


Fun fact: Existing home sales had the best print in this economic cycle last year in the non-seasonal months when inventory was at the lowest. Year over year inventory is lower this month, but should increase going into spring on a month to month basis.

 Unsold inventory is at a 3.4-month supply at the current sales pace (3.8 months a year ago).

Purchase applications once again showed year over year growth of 6% in today’s report. While this might not be enough to offset the decline in cash buyers if they do fall under 20%, this growth does show that housing has held up a lot better to the higher rates this time around, especially since we now have higher home prices and are comparing to a higher level of sales. As always context is key.  We are only at 1998 levels in sales, even with over 155,000,000 people working, rates below 5% since early 2011,the longest job expansion on record and soon to be the longest economic expansion on record.

From Calculated Risk:


All in all, the recently released report  was as good as can be expected. The slow and steady housing story continues with the tenure of housing being at all time highs. We have about 6 more weeks before seasonality kicks in with the purchase application data on a year over year basis.  As long as mortgage purchase applications stay flat to higher, our numbers for 2018 will be fine. At this stage of the year it will be very hard to change the demand curve in any meaningful way.

Slow and steady will win this race.

From Doug Short:

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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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