The Low Housing Inventory Thesis Died Again Today!

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When we get a miss from an estimated existing home sales report, what do you hear right away in the past few years?

We Have No Homes Buy! How can sales grow when we have no homes to buy!

Does this sound familiar, it does to me. They always give the excuse that we have no homes to buy if sales fall but never say sales grow while inventory fell as we did have homes to buy apparently. I have noticed this for over 2 decades now.

One of the reasons why I really wanted to write about housing economics years ago was to bring another voice to the economic discussion. One of the things that I remember the most from the housing bubble years is this line.

We have no homes to buy, “How can sales grow when we have no homes to buy,” we need to build more homes. Back then, you can see the demand booming and adjusted to inflation real home price growth showed a boom as well. Of course, this was a speculative credit bubble, but at least the demand part was technically right. Now not so much in this record-long expansion.

First week

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The next stage of this act was the housing crisis, which leads to the worst financial crisis since the great depression. This lead to a massive spike in inventory and an 82% crash in new home sales. Which then led to the worst new home sales and housing start recovery ever recorded in U.S. history. We don’t have to worry about an overheating economy or housing market now, this is why this cycle has legs.

Even today, here is some perspective of where housing starts are at. For those who have followed my work over the year, they would know my core belief was that housing starts will not hit 1,500,000 until the years 2020-2024. This is based 100% on-demand, not supply. However, more importantly, you will hear stories of record-breaking demand, no homes to buy, tight lending holding housing back, etc., etc., etc. This is kind of like how people talk about Millenials having strong demand, and then 7 hours later, say we have an affordability crisis, and student loan debt is killing desire. Remember, pick a side and stick with it, don’t play both ends unless you give context.

If you love housing, you have to follow Len Kiefer on twitter, my brother from another mother.
Len Kif 2019 Housing Starts

Obviously, I realize that I am all alone in this low inventory critic. However, this is the third time sales had grown to the year high in the winter when inventory was at yearly lows. Apparently, we did have homes to buy again.

Remember the 3 upper dots where during winter when inventory was low, and the 2 lower dots were when inventory was higher. Higher rates create inventory as demand gets softer, and when demand picks up again, sales grow, and inventory falls. Not one time did this notion of no homes buy thesis really capture what is going on in housing, which has a lot to do with housing tenure.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2020/01/22/existing-home-sales-down-up-3-6-in-december

Jan Exisitng home sales

Housing tenure is a real big issue in America; however, it’s a personal choice for some homeowners unless its too expensive to move up. If people don’t want to move, you can’t force them to move just to get more sales.

More on this topic here on Housing Wire: 

Why are people staying in their houses for so long?

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.”

 

Today sales have ended the year 5,340,083

Just like the story of the single-family starts, we ended the year flat. This is a beat in my mind, even though the forecast said flatly to the negative growth trend. We ended the year on a high note as sales got back to flat.

NAR:  https://www.nar.realtor/newsroom/existing-home-sales-climb-3-6-in-december

Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 3.6% from November to a seasonally-adjusted annual rate of 5.54 million in December. Additionally, overall sales took a significant bounce, up 10.8% from a year ago (5.00 million in December 2019).

On a full-year basis, total existing-home sales ended at 5.34 million, the same level as in 2018, as sales in the South region (+2.2%) offset declines in the West (-1.8%) and Midwest (-1.6%), as the Northeast remained unchanged.

All in all, a good year for housing on many fronts. Years 2020-2024 are going to be different than 2008-2019. We not only have better demographics, but our homeowners in America are also in much better shape than what we saw from 2002-2005 in the run-up with the credit bubble.

As long as the 10-year yield stays away from 2.62% and higher, we shouldn’t see too noticeable of a hit to housing.

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 Facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.