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:
“The National Association of Realtors said on Monday existing home sales slipped 0.6 percent to a seasonally adjusted annual rate of 5.38 million units last month. May’s sales pace was revised down to 5.41 million units from the previously reported 5.43 million units.”
“Inventory increased 0.5 percent in June from a year ago. That was the first year-on-year increase since June 2015.”
Two key points to remember regarding for housing in 2018.
Purchase application data has been up year over year in almost every single report this year. You may recall in 2014, sales went negative due to mortgage purchase applications falling 20% year over year. This year growth in this metric is between 1% -11% year over year, so comparatively, that might sound really good. But when you compare 2018 to 2016 data it looks less cheery. In 2016 purchase applications were up 25% + every week during the heat months of the data line, year over year so 2018 growth is modest and still only at 1998 levels.
From Calculated Risk:
Cash buyers have been down year over year as a percentage of total sales but not to the levels of 16%-19% as I expected. Cash buyers continue to make up a respectable percentage of the total market. In this report we saw an increase in cash buyers, year over year, even as total sales were down, year over year. Last year cash buyers were flat to positive most of the year on a year over year basis. The falling percentage of cash buyers means we need more mortgage growth in order for total sales to grow.
First-time buyers were 31% of sales in June; Individual investors purchased 13% of homes in June; All-cash sales were 22% of transactions in June; Distressed sales were 3% of sales in June.
Inventory typically increases into the spring and summer months. This report shows the first inventory increase since June of 2015 on a year over year basis. Monthly supply is still low so we shouldn’t read too much into this data line yet. If inventory increases next year and we see more and more negative year over year prints in existing home sales this will mean that builders will continue to be cautious as existing homes supply is their main competition. I don’t see any reason why we should see 1,500,000 total housing starts this decade with new home sales volumes still being so low. In the years 2020-2024, however, we should get to 1,500,000 total housing starts and purchase applications should finally break into the 21st century.
Unsold inventory is at a 4.3-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. If one maintains a realistic outlook on the current state of housing economics, then the lack of growth in existing home sales shouldn’t be a surprise. The housing cycle from 2008 to 2019 is having slow and steady demand from mortgage buyers and record-breaking demand from cash buyers. Growth in the U.S. housing market hinges on growing the number of mortgage buyers as cash buyers fall. The real question for the future is that when birth rates grow, hopefully in years 2020-2024, does this slow down or reduce the housing tenure data?
With last month’s decline, sales are now 2.2% below a year ago.
From Doug Short:
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