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 5.43 million, a slight miss from estimates. Cash buyers fell 1% on year over year basis.
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 0.4 percent to a seasonally adjusted annual rate of 5.43 million in May from downwardly revised 5.45 million in April. With last month’s decline, sales are now 3.0 percent below a year ago and have fallen year-over-year for three straight months.
Although cash buyers are down they still make up 21% of sales. I predicted that cash buyers would contribute 16%-19% of total sales for the year, so I underestimated their staying power in this market. The solid contribution by cash buyers to total sales is providing some cushion to the slow and steady growth in mortgage demand that we are seeing in 2018 compared to last year.
Purchase applications grew 3%, year over year this week. So far this year all we have seen is positive growth on a year over year basis every week but one. The growth we have seen ranges between 1% -11% but nothing like the 25% + growth we saw in 2016. We are still at 1998 levels in purchase applications, even with over 155,000,000 people working, the longest job expansion ever and soon to be the longest economic expansion ever in U.S. history. If cash buyers fall again in 2019 we will need much more than the 1%-11% growth in purchase applications to make up for the loss.
From Calculated Risk:
First-time buyers were 31% of sales in May; Individual investors purchased 15%; All-cash sales were 21% of transactions; Distressed sales were 3% of sales in May (lowest since NAR began tracking in October 2008).
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. This housing cycle from 2008-2019 is having 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 buyers 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