Today the NAR reported that existing home sales up 2.5% from April to a seasonally adjusted annual rate of 5.34 million in May. Sales were also down 1.1% 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 this year. Yesterday, my call that the 10-year yield would fall under 2% if world trade got weaker came true when we arrived as low as 1.97%.
“For 2019, I am sticking to my call that the 10-year yield will channel between 1.60% to 3%. If world trade gets weaker, we could see the 10-year yield with a 1% handle again.”
The factors that can drive yields down toward my low-level channel of 1.60% would be
– Weaker Domestic PMI data
– Global Headline Risk to escalating trade war talk
– Stocks selling off driving more money into bonds
Right now we are basically at the lows we saw in 2017 on the 10-year yield, so we need to crack this tight area before we can talk about another leg down.
Written Wednesday after the Fed’s meeting
With 5 months of data in for 2019, we are trending a tad above 5,230,000 with inventory rising a little year over year. This looks perfectly in line with what I was looking for. In my mind, anytime we print over 5,300,000 in existing home sales, it should be viewed at as a beautiful beat on sales.
I am trying to warn my fellow housing analyst to not overhype one month’s data or attempt to extrapolate too much during the next 6 months when year over year comps will be a lot easier. The housing industry is notoriously known for over hyping housing data.
From the NAR:
Total existing-home sales1, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 2.5% from April to a seasonally adjusted annual rate of 5.34 million in May. Total sales, however, are down 1.1% from a year ago (5.40 million in May 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.
The number of cash buyers as a percentage of sales fell to 19% a rare sub 20% print. 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 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 on a year over year basis.
Unsold inventory is at a 4.3-month supply at the current sales pace, up from both the 4.2 month supply in April and from 4.2 months in May 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