Existing Home Sales & A 2.62% 10-Year Yield

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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.”

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

As of today, we are trending at 5,322,000; this is still trending a negative year to date but really close to positive. This is similar to housing starts as well, which are only down 0.6% year to date.

Last month I wrote this because some people read the softness in the data to mean something is wrong, like “WE Have No Homes To Buy.”

“Try not to read too much into a month to month housing data line in the context of extrapolating a big macro theme. Initially, the response I saw from the media and twitter finance that something went wrong in this month’s report.”

This is the 3rd year in this record-breaking economic expansion where existing home sales have had their best sales print of the year in the fall and winter when inventory levels are at their lowest.  It’s incredible how Americans always find homes to buy when, in theory, some people say there are no homes to buy.

Hat trick completed in 2019.

Let me break some news out for everyone. Not much is happening in the housing market for existing-home sales that would warrant a significant change in thinking. The V shape recovery we are seeing in housing this year is only due to the weakness we saw in late 2018. That weakness was only due to a lack of marginal buyers not buying homes when rates were higher.

Essential now:  2.62% + on the 10-year yield creates softness in the housing data. Especially when we rise toward the 3% level. Last year for a brief time, we were over 3% on the 10-year yield, and the data got really soft. So the next time we hit 2.62% on the 10-year yield, be mindful of housing data, especially if we go higher in yields.

From the NAR:
Total existing-home sales1https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums, and co-ops, increased 1.9% from September to a seasonally-adjusted annual rate of 5.46 million in October. Despite lingering regional variances, overall sales are up 4.6% from a year ago (5.22 million in October 2018).

Everything looks right to me; in fact, it looks better!  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%.

Year over year comps is going to be easy to beat until February of 2020. This is a positive for the housing market but take this data line in context to where housing was late last year.

NAR Research
@NAR_Research

 

Despite lingering regional variances, overall sales are up 4.6% from a year ago (5.22 million in October 2018). #NAREHS  

November Exist home sales year over year

One of the things that I have been waiting to see for years is that cash buyers as a % of sales fall in between 16%-19% of sales. We have had a few reports recently showing below 20% cash buyer sales data.

NAR Research

@NAR_Research

First-time buyers were responsible for 31% of sales in October; Individual investors purchased 14% of homes in October; All-cash sales accounted for 19% of transactions in October; Distressed sales represented 2% of sales in October. #NAREHS

 

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While sales are still trending barely negative in 2019, the existing home sales market is healthy. The figure in today’s report is a legit beat in my mind. If one maintains a realistic outlook on the current state of housing economics, then the lack of total 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, which are now falling as a % of sales under 20%. 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.

From Doug Short: 
https://www.advisorperspectives.com/dshort/updates/2019/11/21/existing-home-sales-up-1-9-in-october

November Existing Home sales


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