Sunday, 18 of February of 2018

Economics. Explained.  

Existing Home Sales

January 24, 2018

Existing home sales declined 3.6% in December to 5,570 thousand.  However, sales surged by 5.1% in November to 5,780 thousand which was the strongest pace in more than 10 years (December 2006).

Lawrence Yun, NAR chief economist  says,  “Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand.  At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.”

The strong sales pace reduced the months’ supply of unsold homes by 0.3 month to 3.2 months.  That is 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 40 days in December which is down 23% from 52 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.

The National Association of Realtors series on affordability now stands at about 160.0.  At that level  it means that a household earning the median income has 60.0% 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 fell 0.2% in December to $246.800 after having risen 0.5% in November.  Because this is a relatively volatile series we tend to focus on the 3-month average of prices which now stands at $247.000.  Over the course of the past year existing home prices have risen 5.8% and have generally been bouncing around in a 4.5-8.0% range.
 
  Stephen Slifer

NumberNomics

Charleston, SC


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