Today the NAR report that pending home sales were down 10.6% month to month and down slightly year over year by 0.5%. This all looks right to me.
From The NAR: https://www.nar.realtor/newsroom/pending-home-sales-slip-10-6-in-february
- Pending home sales decreased by 10.6% in February with all regions showing a decline.
- After eight consecutive months of year-over-year gains, pending home sales decreased by 0.5% from a year ago.
- The Pending Home Sales Index fell below 100 in the Northeast and West regions. An index of 100 is equivalent to the level of pending sales in 2001.
One of the hardest things to track due to the Covid19 impact has been where trend sales data is because housing data had a parabolic rebound in the 2nd half of 2020. However, since the end of last summer, I have stressed time and time again that housing data needs to moderate from this parabolic rise and don’t read too much into the moderation. Pending home sales are finally getting back toward a more reasonable level.
A rule of thumb I have used for months is that the existing home sales data needs to get back to 6,200,000 and lower and this would be very normal. We aren’t there just yet but getting close.
The rule of thumb I am using for 2021 is that existing home sales, if they’re doing good, should be trending between 5,840,000- 6,200,000. This, to me, would be considered a good year for housing. This also means that we should have some prints above 6,200,000 like we have had already and below 5,840,000, which hasn’t happened yet. We ended 2020 with 5,640,000 existing home sales which was only roughly 130,000 more than 2017 levels. I have always stressed the key term of replacement buyer demand, which runs in line with my mindset that Demographics are the best in the years 2020-2024. This means for me that total home sales, both new and existing, combined should be higher than 6,200,000. Anything below this level I would consider to be a disappointment. When can we tell if the existing home sales market is getting noticeably softer due to a lack of demand? Two things should happen. Days on the market in America running at 20 days, a big drop from last year should rise. This I would consider being a bullish event. The fact that this data is still this low I see as a big problem for housing. This is leading to much stronger price growth than I am comfortable with. In fact, I call this the most unhealthy housing market in the past 10 years.
From the NAR:
2nd is that the existing home sales data would be trending with a few prints around the 5,340,000 level. This is roughly where ended 2019 total existing-home sales levels. However, from where we finished in 2020, multiple sales prints at this level and lower would mean softness in demand. Normally we wouldn’t have this much drama in tracking a proper sales trend. However, Covid19 did a number of all economic data. In fact, I created the #IgnoreAllYearOverYearData on Twitter to express my belief that people should not focus on the year-over-year data for the rest of the year because going out the next few months, it’s going to be too strong and then too weak.
Regarding the purchase application data that came out today. Ignore the 39% year-over-year growth print today. However, even adjusting to the Covid19 low comps purchase application data has been positive every week this year. This had even surprised me as I wasn’t looking for 9.72% year-over-year trends before the Covid19 data ruined the comps. I would attribute the better purchase application data to the makeup demand we were still having early in 2021.
From Calculated Risk:
This week we saw 39% year over year growth, and last week was at 26% year over year growth which I don’t even bother recording in the average. Just remember that all housing data will show negative year-over-year data in the 2nd half of 2020. Usually, purchase application data showing negative 20% year over year trends as it did in 2014 will show you clearly that housing is getting weaker. This isn’t the case so far this year, and don’t bite on the negative year-over-year data in the 2nd half of 2021 unless it is clearly adjusting to the covid19 high comps of 2020.
Also, here is my latest from HousingWire, in which I breakdown the chances that will trillions of dollars of fiscal stimulus lead to 5% or higher mortgage rates.
Logan Mohtashami is a Lead Analyst for Housing Wire, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.