In 2017, I wrote: “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 existing home sales of 5.46 million, a slight miss from estimates but following the same old story of slow and steady demand.
“Total existing-home sales1, https://www.nar.realtor/existing-home-sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 2.5 percent to a seasonally adjusted annual rate of 5.46 million in April from 5.60 million in March. With last month’s decline, sales are now 1.4 percent below a year ago and have fallen year-over-year for two straight months.”
Two things stick out in the existing home sales report released today:
First, cash buyers, even though they have been down 3 out of the 4 reports this year, were flat on a year over year basis in this report, but still 20% or above every month this year. I predicted that cash buyers would contribute 16 %-19% of total sales for the year. The strong contribution to sales by cash buyers is providing some cushion to the slow and steady mortgage demand growth we are seeing take course in 2018 on year over year basis.
First-time buyers were 33% of sales in April; Individual investors purchased 15% of homes; All-cash sales were 21%; Distressed sales were 3.5% of sales.
Second, the increased supply of homes on the market going into spring has not boosted total demand. The best existing home sales print of this economic cycle all came when inventory where at its lowest and during the “low-season”. Monthly supply is almost back to the same levels of last year. This means we are getting close to the lowest inventory of this cycle. The long housing tenure, which is about double in this cycle compared to the previous cycle, is keeping inventory low.
Is it possible to have hot demand and a housing affordability crisis in the same calendar year? Some seem to think so!
Unsold inventory is at a 4.0-month supply at the current sales pace (4.2 months a year ago).
The numbers in today’s report are consistent with what I expected for 2018. Sales this year have the potential to beat my expectations rather than under-perform because cash buyers are holding up well and mortgage demand is at cycle highs. If one maintains a realistic outlook on the current housing economics, then you won’t be surprised by the month to month variations in the data. The housing cycle from 2008-2019 had slow and steady demand from mortgage buyers and record-breaking demand from cash buyers. The future of the U.S. housing market will depend on a growing number of mortgage buyers and fewer cash at least until the next job-loss recession.
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