Today the NAR reported that existing home sales were down 4.9% from February to a seasonally adjusted annual rate of 5.21 million in March. Sales were also down 5.4% from a year ago.
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.”
I tried my best on Twitter finance to warn against overreacting to the last report.
“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” needs lead to a rebound in February. For this reason, don’t over-interpret this report as super bullish. If you take the 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 within 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.”
February data was revised a tad lower to 5,480,000. The data in all 3 reports combined are in line with my predictions for the year even with sales being down year over year with a rising inventory. However, the combined sales trend of near 5,210,000 the upper range of my forecast and recently we had better year over year mortgage purchase application growth which would help existing home sales in future reports.
Total existing-home sales1, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9% from February to a seasonally adjusted annual rate of 5.21 million in March. Sales as a whole are down 5.4% from a year ago (5.51 million in March 2018).
Everything looks fine to me. I have to remind my readers that housing is always plagued by two houses that either over hype short-term data to up and downside. We either have super housing bulls or bears but the true game was in the middle which I know isn’t sexy to report.
The reality is that 2019 is already going to be another good year because of how purchase application data as acted with only 3 more weeks left before seasonality kicks in. Also, cash buyers are still 20% + of sales this year which gives a cushion demand push.
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.
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.
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 all-time highs play into this equation.
Unsold inventory is at a 3.9-month supply at the current sales pace, up from 3.6 months in February.
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
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