Tuesday, 26 of September of 2017

Economics. Explained.  

Existing Home Sales

September 20, 2017

Existing home sale fell 1.7% in August to 5,350 thousand after having fallen 1.3% in July and 2.0% in June.  While these sales bounce around a bit from month to month they 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, “What’s ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it’s putting on prices in several parts of the country. Sales have been unable to break out because there are simply not enough homes for sale.”  He added that, “Some of the South region’s decline in closings can be attributed to the devastation Hurricane Harvey caused to the greater Houston area. Sales will be impacted the rest of the year in Houston, as well as in the most severely affected areas in Florida from Hurricane Irma. However, nearly all of the lost activity will likely show up in 2018.”

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 was 30 days in July which is down 17% from 36 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 148.0.  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 1.8% in August to $253,500 after having fallen 2.0% in July to $258,00 after having risen 4.3% in June.  Because this is a relatively volatile series we tend to focus on the 3-month average of prices which now stands at $260,800..00.  Over the course of the past year existing home prices have risen 5.6% and have generally been bouncing around in a 4.5-8.0% range.
 Stephen Slifer


Charleston, SC

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