Wednesday, 20 of June of 2018

Economics. Explained.  

Existing Home Sales

May 24, 2018

Existing home sales declined 2.5% in April to 5,460 thousand after having risen 1.1% in March.  As always these numbers have considerable monthly volatility.  And while there was a decline in April, the trend still seems to be clearly upward.  The November sales pace of 5,780 thousand was the strongest pace in more than 10 years (December 2006).

Lawrence Yun, NAR chief economist said,   “The root cause of the under-performing sales activity in much of the country so far this year continues to be the utter lack of available listings on the market to meet the strong demand for buying a home,” he said. “Realtors say the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates. However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.”

The modest decline in sales combined with a sizable increase in the inventory of homes available caused the month’s supply of home to climb from 3.5 months in March to 4.0 months in April.  The December reading of 3.2 months was the lowest reading since the National Association of Realtors began collecting data in 1999.  Realtors consider a 6.0 month supply as  the point at which demand for and supply of homes are roughly in balance.  Thus, housing remains in short supply.  If sales were not being constrained by the limited supply it would almost certainly be at a 6,000 thousand pace.  Having said that, to sustain the current pace of sales with inventory in such short supply builders will have to substantially boost their rate of production.

Keep in mind that properties typically stayed on the market 26 days in March which is down 10% from 29 days a year ago.  This is one of the shortest lengths of time between listing and sale  since the NAR began tracking these data in May 2011.  Note, too, the strong seasonal movement in this series.  The four most recent peaks occurred in December or January of each year between 2013 and 2016.  Our sense is that as sales pick up in the spring, this series will continue to decline.

The National Association of Realtors series on affordability now stands at about 150.0.  At that level  it means that a household earning the median income has 50.0% more income than is necessary to get a mortgage for a median priced house.  Going into the recession consumers had only 14% more money than was required to purchase that median priced home.  Thus, housing remains quite affordable and should continue to remain affordable throughout 2018 despite the backup in mortgage rates because sizable job gains are boosting income almost as fast as mortgage rates and home prices are rising.

  The housing sector will continue to expand in the quarters ahead.   Jobs growth is expected to remain solid which should boost  income.  Builders are trying hard to boost production to increase the supply of available homes which should slow the pace of price appreciation. Finally, mortgage lenders should become slightly less restrictive as the economy remains healthy and default rates decline.
Existing home prices rose 3.2% in April to $257,900 after having risen 3.7% in March  Because this is a relatively volatile series we tend to focus on the 3-month average of prices which now stands at $245,600.  Over the course of the past year existing home prices have risen 5.3% and have generally been bouncing around in a 4.5-8.0% range.
  Stephen Slifer


Charleston, SC

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