Wednesday, 22 of November of 2017

Economics. Explained.  

Existing Home Sales

October 20, 2017

Existing home sale rose 0.7% in September to 5,390 thousand after having fallen 1.7% in August.  The August and September data reflect the combined effect of Hurricanes Harvey and Irma.  In fact sales in the South are currently 150 thousand below where they were in July.  Add that back in and existing home sales are less troublesome.  While these sales bounce around a bit from month to month they have  clearly fallen off in recent months.  The March sales pace of 5,700 thousand was the fastest since February 2007. We believe that the recent slide represents a supply constraint rather than a lack of demand.

Lawrence Yun, NAR chief economist  says,  “Home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country.  Realtors continue to say the primary impediments stifling sales growth are the same as they have been all year: not enough listings – especially at the lower end of the market – and fast-rising prices that are straining the budgets of prospective buyers.”

The months’ supply of unsold homes was unchanged at 4.2 months.  Realtors consider a 6.0 month supply as  being 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.

Keep in mind that properties typically stayed on the market 34 days in September which is down 13% from 39 days a year ago.  This is essentially the shortest length of time on the market since the NAR began tracking these data in May 2011.

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 48.0% 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 despite the backup in mortgage rates.  That is because sizable job gains are boosting income almost as fast as mortgage rates 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 declined 3.2% in September to $245,100 after having fallen 1.9% in August.  Because this is a relatively volatile series we tend to focus on the 3-month average of prices which now stands at $255,800..00.  Over the course of the past year existing home prices have risen 4.2% and have generally been bouncing around in a 4.5-8.0% range.
 Stephen Slifer


Charleston, SC

Leave a comment