Today the NAR reported that existing home sales were down 0.4% from March to a seasonally adjusted annual rate of 5.19 million in April. Sales were also down 4.4% 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.”
The prediction above was made even with my mortgage rate forecast going down to as low as 4.125%. Also, the possibility of the 10-year yield breaking under 2% if world trade got weaker, which even means mortgage rates lower than 4.125%.
With four months of data in for 2019, we are trending a tad above 5,200,000 with inventory rising a little year over year. This looks perfectly in line with what I was looking for. What happened on twitter finance is that the misread of February sales created a false narrative of a booming demand for spring, which I tried my best to shoot down right away.
Total existing-home sales1, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums, and co-ops, fell 0.4% from March to a seasonally adjusted annual rate of 5.19 million in April. Total sales are down 4.4% from a year ago (5.43 million in April 2018).
Everything looks beautiful 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 actual 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 as long as you maintain a realistic approach to demand. Purchase application data is at cycle highs, but the rate of growth during the heat months year over year was only trending at 3.7%.
Still, we are negative year over year in sales with rising inventory and lower mortgage rates. However, this data line will get better in the 2nd half of the year as year over year comps get easier. We shouldn’t concern ourselves too much with negative year over year sales trend when we have rising purchase applications.
Total sales are down 4.4% from a year ago (5.43 million in April 2018).
The number of cash buyers as a percentage of sales is still at 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 April; Individual investors purchased 16% of homes in April; All-cash sales accounted for 20% of transactions in April; Distressed sales represented 3% of sales in April.
Housing inventory is rising but not by too 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. Once again, just like in 2014, the rising stock doesn’t equal, increased sales.
Unsold inventory is at a 4.2-month supply at the current sales pace, up from 3.8 months in March and up from 4.0 months in April 2018.
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 figures 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