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 existing home sales came in as a beat at 5,320,000.
From the NAR:
Total existing-home sales1, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.9 percent from October to a seasonally adjusted rate of 5.32 million in November. Sales are now down 7.0 percent from a year ago (5.72 million in November 2017).
If you follow me you know that am not a fan of the thesis that low inventory is holding back demand for housing. Since 2015, I have warned that the talk of low inventory preventing record-breaking sales was unwarranted. Mortgage purchase applications are still at 1998 levels. The lengthening housing tenure is the bigger issue for the housing market. Year over year comps show (and will continue to show) that the best existing home sales prints of the cycle occur when inventory levels are at cycle lows. Higher sales prints occurred during times of low inventory in the fall and winter of last year. At this time last year we had the best existing home sales print of the year, when inventory hit a cycle low.
” Untold story of 2018 was that purchase application data showed growth year over year and nobody cared what so ever”
Purchase applications have been up, year over year, in all but six reports this year. You may recall in 2014, sales went negative because purchase applications fell 20% year over year. This year mortgage purchase application are growing between 1% and 11%, year over year. That might sound really good compared to last year, but when you compare 2018 to 2016, the data looks less rosy. 2016 purchase application were up 25% year over year in the heat months. 2018 growth is modest and still only at 1998 levels. In this context, the housing market has held up well with higher home prices and higher mortgage rates through the spring and summer. This is a net positive that never got the attention it deserved.
In California, Las Vegas, Nevada and Seattle, Washington mortgage demand got hit the hardest, similarly to what happened in 2013/2014 when mortgage rates went to 4.5%. The number of cash buyers are falling, but not too dramatically yet.
From Calculated Risk:
Cash buyers fell as a percentage of sales but remain about 20% of the market, which is still double the historical norm. We might have a higher than normal trend for cash buyers for a while. Getting back to 10% of sales just isn’t in the works for anytime soon. My expectations for the percentage of cash buyers to fall to 16%-19% have been wrong for the last 2 years.
First-time buyers were responsible for 33% of sales in November; Individual investors purchased 13% of homes; All-cash sales accounted for 21% of transactions; Distressed sales represented 2% of sales in November.
Existing home sales trends have been negative outside 3 months, and this is what I expected for in 2018, so nothing abnormal here. We simply still don’t have the mortgage buyer demand to grow much. Increasing housing tenure needs to be incorporated in the models for sales growth now and possibly for decades to come.
Sales are now down 7.0% from a year ago (5.72 million in November 2017).
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. Demand from mortgage buyers during the years 2008 to 2019 has been and will continue to be slow and steady with record-breaking demand from cash buyers. Growth in the U.S. housing market hinges on increasing the number of mortgage buyers while cash buyers fall. The real question for the future of U.S. housing economics is if housing tenure will fall or begins to decline when birth rates grow in the years 2020-2024.
On another note, the new home sales market has had a material change that is worth noting. See the article I posted yesterday for details on what needs to happen in order to escape the funk in the new home sales market. I will also be on Bloomberg Financial on the 28th of December to discuss this and other issues that will affect the outlook for housing in 2019.
“The Housing Market Has Materially Changed… But”
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