2018 Total Existing Home Sales Look Just Right

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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.”

https://loganmohtashami.com/2017/12/31/2018-economic-housing-predictions/  

Total existing home sales will end up roughly at 5,3400,000 for 2018. This is a drop in sales of 170,000 from 2017 levels. We should see an upward revision to this soft number next month but sales did fall and inventory did rise in 2018, but nothing too dramatic. These numbers should be taken in context with the fact that nominal home prices are at cycle highs and mortgage rates are at the highest levels since 2011.

From the NAR:

Total existing-home sales1https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, town homes, condominiums and co-ops, decreased 6.4 percent from November to a seasonally adjusted rate of 4.99 million in December. Sales are now down 10.3 percent from a year ago (5.56 million in December 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 longer term but for 2018 mortgage rates were the culprit for the decline in home sales. 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 a solid existing home sales print of the year, when inventory was lower.

Unsold inventory is at a 3.7-month supply at the current sales pace, down from 3.9 last month & up from 3.2 months a yr ago

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The most untold story in housing for 2018 was a positive one.

“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 in 2018. You may recall in 2014, sales went negative because purchase applications fell 20% year over year. In 2018 year mortgage purchase application were 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 was modest and still only at 1998 levels. Last week we had a 11% growth year over year in purchase applications, so be mindful that growth in this index doesn’t necessarily mean growth in existing home sales.  The existing housing market has held up well with higher home prices and higher mortgage rates in 2018.  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:  My lines drawn in 

https://www.calculatedriskblog.com/

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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 begin to decline when birth rates grow in the years 2020-2024.

My 2019 Housing Predictions Can Be Found Here: https://loganmohtashami.com/2018/12/29/2019-economic-housing-predictions/

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2019/01/22/existing-home-sales-down-6-4-in-december

jan ehs

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