Today the NAR reported that existing home sales were up 11.8 percent from January to a seasonally adjusted annual rate of 5.51 million in February.
January data was revised a tad lower to 4,930,000. The data in both these reports combined are in line with my predictions for the year even with sales being down year over year with rising inventory.
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.”
January’s slowdown reflected the cold weather and the government shut down which delayed government administered loans. Also, anyone working for the federal government was basically stopped from buying. The “built-up” need lead to a rebound in February. For this reason, don’t over-interpret this report as super bullish. If you take average for both months trend sales look 5,220,000 and for 2019 that looks fine. The year over year sales data is going to be negative because comps won’t get easier until July. In the 2nd half of the year, especially toward the end, expect to see year over year growth prints as long as we stay with in my trend sales range for the year. Don’t let the housing bears scare you into thinking there will be a crash 2019, they’re already wrong about that even if they don’t know it yet.
In fact we have more positive prints in 2019 on the year over year purchase application data than negative prints. 2019 bares no resemblance to 2014 data when this index was down 20% year over year. The article below accounts for the purchase application scorecard so far this year.
Total existing-home sales1, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, shot up 11.8 percent from January to a seasonally adjusted annual rate of 5.51 million in February. However, sales are down 1.8 percent from a year ago (5.61 million in February 2018).
If one believed that we were in the midst of an affordability crisis, a student loan debt crisis and the auto loan crisis that was preventing homes sales, then they must think a miracle occurred between January and February.
“Lawrence Yun, NAR’s chief economist, credited a number of aspects to the jump in February sales. “A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound.”
Some of the financial media and those on twitter finance seem to believe we are headed to a new higher range above 5,5100,000 for the rest of the year. If this doesn’t happen, these folks are going to be disappointed. A more reasonable approach is to view at any print above 5,300,000, especially from April and on, as an A plus beat of expectations. If existing homes sales doesn’t grow above 5,510,000 over the next 3 months, trust me, nothing is wrong. The last time we had such a wild swing in sales month to month was due to TRID being introduced and the home buyer tax credit. A lot of one time economic, stocks, weather and government factors in play in December, January and February, before these months, sales were trending roughly around 5.2 -5.3 million.
Still, we are negative year over year in sales with rising inventory and lower mortgage rates but this data line will get better in the 2nd half of the year. We shouldn’t concern ourselves with negative year over year sales trend when we have rising purchase applications.
Sales are down 1.8% from a year ago (5.61 million in February 2018).
The number of cash buyers as a percentage of sales is still above 20%. These buyers are giving the existing home sales market a cushion that the new home sales market doesn’t have.
First-time buyers were responsible for 32% of sales in February; Individual investors purchased 16% of homes in February; All-cash sales accounted for 23% of transactions in February; Distressed sales represented 4% of sales in February.
Housing inventory is rising but not by much. If we were facing a significant problem with housing demand or an affordability problem then inventory would be rocketing higher. Housing tenure at all-time highs plays into this equation.
While it is true that inventory is up year over year and sales are down the number for either of these metrics don’t indicate an impending crisis. 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.One final note:
Mortgage rates are practically at the end range for my rate predictions for 2019 at 4.125%.
However, I did predict a 1 handle on the 10 year yield is in play if world trade gets weaker.
“If world trade gets weaker we could see the 10 year yield with a 1% handle again.”
This quote was taken from the Washington Post before the Fed’s announcement. Yesterday yields closed at 2.54% but today the Dow was down 460 points and yields went much lower.
“Even though we have had no bond volatility whatsoever recently and oil prices are above 60 today, a pullback in stocks could drive yields lower if the stock market feels the China trade deal might take longer,” Mohtashami said.
The easy part on my lower yield and lower rate call is done. Now we need some economic and stock assistance to drive yields lower with a one handle. Oil prices have firmed up and the recent lows around $43 so PMI data here in the U.S. should be bottoming out soon. However, if world trade gets weaker and stocks do sell off don’t be surprised if that 1 handle 10 year yield call comes true.
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