The silver lining in the existing home sales report



Thursday the National Association of Realtors reported that we experienced a 23.8% year-over-year decline Sales of existing houses in September and total inventory has now fallen on consecutive reports.

Earlier in the year, I referred to this as wildly unhealthy housing market based on the premise that stocks would hit historic lows, creating forced auctions and causing days-on-the-market to collapse. It is not a good thing. With this report, finally, we are now seeing some positive data on this.

Although still too low for my liking, the days in the market are going in the right direction – higher – creating balance. With such massive home price growth in 2020 and 2021 shattering my affordability model, I knew we were at high risk of a bigger than usual drop in sales if the 10-year yield exceeded 1.94. %, which meant 4% + mortgage rates.

My premise in the summer of 2020 was that a 10-year yield above 1.94% could change the housing market. The second working premise was that if house prices rose more than 23% in five years, we would also be in trouble. Well, that was destroyed in just two years, and 2022 is another year on the books with major price gains. The two variables in my model started dancing together in April of this year, resulting in our current market.

The role of mortgage rates

Not only mortgage rates above 4%, we are now above 7%. Sales are falling faster than in the past when rates rose, rattled by the epic affordability punch of massive price gains since 2020, as well as an explosive spike in mortgage rates. Rates have risen so rapidly that data on new listings has been declining since late June; it impacts supply and demand.

It was a wildly unhealthy housing market in February, and it only got worse.

Of NRA: Total existing home sales, completed transactions that include single-family homes, townhouses, condominiums and co-ops, fell 1.5% from August to a seasonally adjusted annual rate of 4.71 million in september. Year-on-year sales were down 23.8% (from 6.18 million in September 2021).

With nearly 65% ​​of US households having a mortgage rate between 2% and 4% and 85.9% having rates of 5% and below, you can understand why some sellers are hesitant to put their house up for sale and move. The total cost of housing has risen so rapidly that it has changed its behavior, and data on new listings has been declining since June.

This is why I consider this housing market to be sloppy and why the rapid increase in mortgage rates is problematic. It would be one thing if rates had moved to 4.75%-5.75% and we stayed in that range. However, going from 2.5% to 7.37% today is too fast for some. I’m hoping for a more traditional registration season in Spring 2023: The last thing we want to see for Spring 2023 is new registration data going negative year over year.

Of NRA: Total existing home sales fell 1.5% from August to a seasonally adjusted annual rate of 4.71 million in September.

As I’ve talked about many times over this year, once the demand data started to deteriorate, we were in a place where we were going to see bigger year-over-year declines in the data on demand from October this year. Indeed, last year around this time, demand for mortgages began to pick up, so the weekly index will show this first.

Buy app data update:

-4% week by week
-38% Year after year
-36.25% four-week moving average

As we’ve been discussing for a while, competitions have gotten tougher now that it’s October, so expect 35%-45% YoY is declining to be the norm as demand picked up last year. If more weakness occurs, -53%-57% year-over-year declines are in play due to tougher competitions from October through late December.

We rarely see non-seasonal growth in this line of data, but it happened last year with demand for mortgages, which drove sales to 6.49 million.

With that in mind, we should see significant year-over-year declines in existing home sales data through January 2023.

NRA: Year-over-year, sales were down 23.8% (vs. 6.18 million in September 2021).

Now that we are getting closer to the end of this year, I think my price growth forecast for 2022 will not be correct, as I was looking for a bigger deceleration in price growth. I expected the year to end between 5.2% and 6.7%, and it looks like we will end the year higher than that. One thing I can say for sure is that 4-5% mortgage rates didn’t do the damage I thought they would, but once rates hit 6% they did. did.

This ties in with my long-term work on housing going back to 2013 when I talked about many of my affordability models being hit much harder if mortgage rates go above 5.875%, and we’re there now at this point.

NAR_Research: The median existing home price for all housing types in September was $384,800, an 8.4% jump from September 2021 ($355,100), as prices rose in all regions. That’s 127 straight months of year-over-year increases, the longest streak on record.

The silver lining

Now for the positive story: the market’s growing days are almost above a teenage impression, which hasn’t happened in a while. Having lots of home options is always a plus for the housing market, and what we’ve had since 2020 hasn’t been close to breakeven. I prefer a housing market with full 2019 inventory levels, and we’re not there yet.

Inventory fell in consecutive reports to 1.25 million. Once we reach a range of 1.52-1.93 million, my low inventory talk goes away and the wildly unhealthy housing market ends. For 2023, we can return to those levels as long as we have traditional enrollment growth with higher rates. If rates come back down and demand picks up next year, it will become more difficult.

19 days on the market brings nothing but a smile to my face as we try to get the housing market back to normal. Normal for me is 30+ days. More choices are good; in my opinion, the best way to fight inflation is to increase supply. We entered a historically bad zone with supply after 2020 and we are returning to normal.

NRA Research: First-time buyers accounted for 29% of sales in August; Individual investors bought 15% of homes; Cash sales accounted for 22% of transactions; Distressed sales accounted for 2% of sales; Properties generally remained on the market for 19 days.

As we can see, for months the housing sector has been in recession as demand, production, jobs and incomes fall. Affordability hit the industry in 2022 is a historic event. We are nearing the end of the Fed rate hike cycle unless the labor market continues to strengthen.

At some point in the future, when the growth rate of inflation declines and economic data eases, mortgage rates are expected to decline. Until then, we can see that the American owner is in much better shape than many people imagined. When rates drop, the country will have a greater supply of work and home sellers who are home buyers will feel more comfortable listing and buying that next home.

Also please keep your fingers crossed the days on market will exceed 30 days and we will be back to normal.

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