Home Price Action Looking Healthy!

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My existing home sales forecast for 2018 and 2019 have been for negative growth and a rise in inventory. Nothing too dramatic but slightly lower demand with an increase of supply.

“For 2018, I anticipate existing home sales to be in the range of  5.27 – 5.53 million units.  If we end the year showing negative growth, with rising inventory once again, don’t worry, be happy. This would be “normal,” especially when purchase applications are still trying to party like it is 1999.”

https://loganmohtashami.com/2017/12/31/2018-economic-housing-predictions/

In 2018, for 2019 existing home sales 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.”

https://loganmohtashami.com/2018/12/29/2019-economic-housing-predictions/  

November of 2017, existing home sales hit a cycle high while inventory hit a cycle low. The miracle of hitting a cycle high in home sales with inventory hitting cycle lows has never yet been explained, but I digress.

Since that time frame, the rate of growth of home prices has been falling, and this is a huge positive for the housing market. This not only shows that the housing market is working correctly. This should also dispell the housing bubble thesis that some one-trick pony people have been peddling for years.

More on that here: Housing Bubble 2019?

https://loganmohtashami.com/2019/07/07/housing-bubble-2019/

Adjusting to inflation national price index is negative 0.2% on a year over year basis.

(Consumer Price Index owners’ equivalent rent of residences)

From Doug Short
https://www.advisorperspectives.com/dshort/updates/2019/08/27/s-p-case-shiller-home-price-index-inflation-adjusted-indexes-down-mom

September Case Nominal YoY

On a nominal basis, it is still positive, but the rate of growth has slowed.

September Case Nominal Price

At some point, supply will rise high enough to facilitate price declines, which should be considered healthy and positive. Home price declines will be more prominent in coastal hot price areas as well. However, we are not there yet to get any meaningful nominal national home price declines.

September nominal total

No matter what any human being says on CNBC or twitter the builders simply will not build enough homes while new home sales are this low. So, the market has to do its thing and demand falling, and inventory rising will create the cooldown in prices as it should.

The most recent existing-home sales report had a slight decline in the month to month and year over year inventory levels. Even though the sales trend is still pushing a slight negative year., This would mean that lower mortgage rates have stabilized the market enough to not create more supply.

This right here should question the rate lockdown thesis that is being pushed by the housing industry. This thesis, in essence, is the belief that Americans are sitting at home and waiting for rates to go lower to move up. They refuse to give up the low-interest rate even though in theory they want to move, have a reason to move and have the capacity to move up.

I am not a fan at all on this premise. I believe this story is much more complicated. However, rates fell in 2012, 2014, 2016, and 2019, people used these years to refinance their homes to lower rates, and housing tenure has grown every year in this expansion.

From The NAR

Housing Tenure NAR 2018

Now, inventory is falling a tad again even though rates got as low as they did in 2016.

Nice one!

I have been consistent with my thesis on this for some time. Wait until the next decade when birth rates rise and then possibly the housing tenure slows down or even goes negative.

July Birth rates

People move because of kids, school, jobs, or divorce. Even if the mortgage rate drops back down to a satisfied %. A move-up buyer will always pay more because they’re still buying a bigger home and a more significant payment. I am not talking about boomers downsizing. More on the premise that first-time owners are sitting at home waiting for some rate to appear before they pull the trigger. The big idea I want to push here is that home sizes have been getting bigger and bigger while family size has been in decline. The product that we put out in housing is big enough to facilitate a family of 4. In essence, we created an environment where people simply don’t need to move up much. Now if someone living in a condo or an old American home that is small in size and can’t fit a more larger family. Then that makes sense to move up or even rent a bigger house. Or the second aspect is that selling equity isn’t big enough for first-time owners. They need more equity to facilitate a substantial down payment to make that purchase.

However, back to my original thought. The rate of growth of prices falling is a good thing. I know the raw mentality of hyping home price growth. However, we need to evolve from this thinking. When the market slows down and the price growth is cooling that should be looked at as healthy.

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