Today the NAR reported that existing home sales were down 1.7% from May to a seasonally adjusted annual rate of 5.27 million in June. Sales were also down 2.2% 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.
“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.”
With 6 months of data in for 2019, we are trending a tad above 5,240,000 with inventory rising a little year over year. This looks perfectly in line with what I was looking for. In fact, we are really toward the upper range of my sales trend forecast. My negative growth forecast for existing home sales in both 2018 and 2019 and rising inventory doesn’t surprise me. However, a lot of people, including the NAR, are frustrated with the sales number. In my mind, it indeed looks correct to me that sales are down, and inventory is up.
However, starting from next month is when we really saw the weakness in housing sales back in 2018. So, if the sales trend continues at this pace, we should be able to see a positive year over year print. This will happen especially during September, October, November, and December as sales got noticeably weaker last year. As always, please take any positive year over year data lines in the context. This is only happening because last year’s data got weak, don’t overhype the 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, dropped 1.7% from May to a seasonally adjusted annual rate of 5.27 million in June. Sales as a whole are down 2.2% from a year ago (5.39 million in June 2018).
Everything looks right to me. I have to remind my readers that housing is always plagued by two houses. They either overhypes short-term data to up and to the 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 pushing 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.
Sales as a whole are down 2.2% from a year ago (5.39 million in June 2018).
The number of cash buyers as a percentage of sales fell to 16% this, I believe, is the lowest level of cash buyers as a % of sales in this cycle. One of the reasons I had forecast negative growth in 2018 & 2019 is that I believed this group was going to fall as a % of sales. So far they had been holding up at 20%, but we have had back to back teenager prints in this data line. As long as purchase application data is growing, this isn’t too much of a big deal.
First-time buyers were responsible for 35% of sales in June; Individual investors purchased 10% of homes in June; All-cash sales accounted for 16% of transactions in June; Distressed sales represented 2% of sales in June.
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 4.4-month supply at the current sales pace, up from the 4.3 month supply recorded in both May and in June 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