In 2018, I wrote:
“I am looking for sales to trend flat to negative between 4.92- 5.29 million with slightly more inventory in 2019, but not a dramatic difference.”
Today the NAR reported a miss in existing home sales coming in at 4,940,000 which is down 8.5%, year over year.
The NAR reports:
“Total existing-home sales1, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 1.2 percent from December to a seasonally adjusted annual rate of 4.94 million in January. Sales are now down 8.5 percent from a year ago (5.40 million in January 2018).”
The sales data from today’s report is in my sales range estimates for the year. We had a cold January which could impact sales so we will need see how the next few months look. As long as we don’t have too many prints under 4,920,000, I wouldn’t get too negative on the existing home sales market.
From Doug Short:
We will see some year over year weakness in existing home sales comps early in this year but this will improve after July.
Sales are now down 8.5% from a year ago (5.40 million in January 2018).
Housing inventory should rise but the question is by how much. In 2014 when demand from mortgage buyers was impacted by higher housing inflation, inventory got to almost 6 months for one month that year. 2012 was the beginning of home price gains in this cycle so the financial benefit of selling would not be there for some would be sellers back in 2014. Today, we have had many more years of price gains so it will be interesting to see if sellers are more willing to cash in on their built up equity.
Unsold inventory is at a 3.9-month supply at the current sales pace, up from 3.7 months in December and from 3.4 months in January 2018.
Cash buyers as a percentage of sales, are up to 23% in this report. This is due more to a lack of mortgage buyers then an increase in cash buyers. For the existing home market to grow we need more mortgage buyers to replace the stagnant number of cash buyers. While, cash buyer volumes have fallen over the years, as a percentage of the market they are still at historically high levels. In a “normal” market they would make up only about 10% of existing home sales. In 2019, price gains may make the cash buyers pull back even more.
First-time buyers were responsible for 29% of sales in January; Individual investors purchased 16% of homes in January; All-cash sales accounted for 23% of transactions in January; Distressed sales represented 4% of sales in January.
Last year I thought the untold economic story was how well purchase application data held up well considering that nominal home prices were at all-time highs and mortgage rates were trending at the highest level in years. In fact we were positive year over year 10.5 months of the year and during all the heat months, from the 2nd week of January to the first week of May.
For 2019 I predicted that we would have more negative prints in the purchase application data. year over year, but we should not pull a chicken little and overreact to this.
So far this year we have already surpassed the last years in terms of number of negative prints and we haven’t even hit March yet.
2019 purchase application scorecard: This week purchase applications are up 3% year over year, which breaks the negative streak of 3 weeks in a row. We have had 3 positive year over prints this year of + 13% + 11% +3% and 3 negative prints of -7% -5% -2%. The positive uptrend is still intact from 2014 for now with 11 weeks left in the heat months.
From Calculated Risk
The numbers in today’s report are consistent with what I expected for 2019. 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 remain stagnant or fall. The 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.
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