First, I am going to state the glaringly obvious fact right now that I have tried to do for many years. Whenever there is a missed sales report, “They” always say we have no homes to buy, how can sales grow when we have no homes to buy.
Twice now, in this expansion cycle high in demand when inventory at cycle lows. If you’re still getting played by this notion that is on you now.
13 year high in existing home sales.
Near 40% year over year growth in housing starts.
8 straight weeks of double-digit year over year growth in purchase application data working at cycle highs in demand.
The last new sales report was the best of the cycle, and the 3-month sales trend was encouraging.
The only thing that is prevented this record-breaking expansion from going is the virus as almost all economic data lines we have BC Before Coronavirus was showing nothing but growth. Jobs’ data 3-month average was at 243,000, one of the best in many years, Job openings at 7,000,0000 with 23 straight months of more openings than hires. The Jobless Claims were still heading down until yesterday, Leading Economic Indicators at an all-time high, Retail Sales still growing year over year, and even regional manufacturing data was growing again. Currently, right now, only the jobless claims and new PMI data is showing the negative impact. You can expect the most significant single jump in jobless claims ever to happen next week.
However, AD after the disease is a brand new word. We have to be able to navigate the next few months as we were flying a plane in a storm.
4 things to keep an eye out on for the next 90 days.
1. How many people cancel their purchase of the homes due to the virus. Also, a few did not lock their rates before rates rose.
2. The 10-year yield should be under 0.62% today. Mortgage Rates should be under 3%, but that isn’t happening as the Mortgage Margin Call Meltdown is still going on, and the bond market liquidation has forced the 10-year yield higher. This should get better in time, but the stock market does have to stabilize. Mortgage Rates should be much lower, but the virus has done its Chaos Theory and Butterfly Effect here big time.
3. Put a big * on existing home sales reports over the next 90 days. I have no idea how many people are on lockdown yet or the exact date they will be on lockdown. This, of course, impacts sales as people can’t work an open house typically. Also, amid all this virus news, some people will hold off on a purchase until later.
4. Seller refuses to show their homes. This is obviously a personal choice, and we can’t be on lockdown policies forever. So some might just wait a month or two before listing their homes. Some of the logistical needs to close a home transaction is at risk due to the virus.
Keep an eye out on purchase application data week to week but only on a year over year basis. We have over 160,000,000 people working, millions of people are about to lose their jobs due to this virus. No matter how short term this event is, that is going to weigh on every aspect of the economy until we get back to BC life.
(Hypothetical, Assuming 20 million jobs lost, the Great Recession was less than 9 million)
Out of the 140,000,000 people, that are working, how many of them will buy homes in this environment assuming they were looking to buy in 2020? How many areas of the country will be on full lockdown policies? What is the mindset of real estate investors with this virus? How long will lockdown policies be in place? I still believe in my September 1st thesis that the news on the virus will be much better, but we should also be out of lockdown policies before then.
In any case, today’s data like a lot of recent economic data simply is too old to capture the economic decline created by the virus. However, make no mistake that the housing market was on fire. This print today was 300,000 above my highest estimate range of sales for 2020!
From The NAR:
Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 6.5% from January to a seasonally-adjusted annual rate of 5.77 million in February. Additionally, for the eighth straight month, overall sales greatly increased year-over-year, up 7.2% from a year ago (5.38 million in February 2019).
On a final note. I have written a lot recently about the St. Louis Financial Stress Index. This index was at an all-time low in February, and we have never been in a recession until this index is above zero, we are almost there today and look for this index to keep rising.
St. Louis Fed Financial Stress Index rises to -0.070 for the week ending March 13, up from -0.942 a week earlier (0=normal stress). Find out more about how the index is constructed in FRED: http://ow.ly/Z3b750yQgdd
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.