Existing home sales plunged 2.8% in December to 5.49 million units, seasonally adjusted annualized (SAAR). The Bloomberg Econoday consensus estimate was -1.1%.

Year-over-year sales were up a mere 0.7%. Nonetheless, Lawrence Yun, NAR chief economist, crowed this was the housing market’s best year since the great recession.

Highlights

Lack of homes on the market is increasingly the salient feature of the housing sector, one that is holding down sales. Existing home sales fell 2.8 percent in December to a lower-than-expected 5.490 million annualized rate. An offset is a sizable upward revision to November which now stands at 5.650 million.

Supply is the lowest it’s been since at least 1999 according to the National Association of Realtors which compiles the existing home sales report. The number of houses on the market fell 11 percent in the month to 1.650 million. At the current sales rate, supply fell from 3.9 months to only 3.6 months. These readings are very low.

Yet the lack of supply isn’t making for new price increases as the median, at $232,000, is down 0.9 percent on the month for a year-on-year rate of only plus 4.0 percent. This is down from 6.5 percent in November and is now back to multi-year lows.

Existing Home Inventory Hits Record Low

Mortgage News Daily reports Existing Home Inventory Hits Record Low.

Existing home sales finished out 2016 with a generally expected decline. Still, the National Association of Realtors® (NAR) said today that 2016 overall was the best year for existing home sales in a decade.

NAR estimated that sales for the year as a whole were 5.45 million units. This surpasses the 2015 total of 5.25 million and is the highest total since 2006 when sales reached 6.48 million.

Lawrence Yun, NAR chief economist, says the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note. “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” he said. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.”

The inventory of existing homes shrunk to the lowest level in NAR’s records which date back to 1999. There were 1.65 million existing homes available for sale at the end of December, down 10.8 percent from November and 6.3 percent from the previous December. Inventories have fallen year-over-year for 19 consecutive months. NAR estimates that the current inventory represents a 3.6-month supply at the current rate of sales, down from 3.9 percent in December 2015.

The median price for all types of existing homes sold during the last month of the year was $232,200, a 4.0 percent gain from the December 2015 median of $223,200 and the 58th consecutive month of year-over-year price increases. Single-family homes sold at a median price of $233,500, up 3.8 percent while condo prices rose 5.5 percent on an annual basis, to $221,600.

Supply Issue or Pricing Issue?

In contrast to statements made by the NAR and Econoday, this is not simply a supply issue.

More supply at prices people cannot afford will not do a damn thing!

Median prices have risen 58 months. Prices have outstripped wage growth. Yet, despite a rise in prices and despite the plunge in sales, inventories in December represents a record low 3.6-month supply at the current sales rate, down from 3.9 months in November.

That’s another clue regarding price. Buyers are not getting the price they want (or need), despite the rise in prices.

Boomer Retirement

Think of it this way. Boomers eager to downsize following retirement, cannot get what they want or need for their current house to move to where they want to go.

Those people pulled their homes off the market. They could sell their homes easily enough, just not at the price they want or need.

Regulation to Blame?

Lawrence Yun whined “Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production.”

What a bunch of nonsense. Builders are not ramping up production because they have no buyers at prices which they can make a decent profit.

Attitudes

Attitudes also come into play. Millennials as a group have far different attitudes regarding mobility, family formation, and debt.

Many have seen their parents get deeply in trouble over debt, perhaps even divorced.

Demographics

Record numbers of millennials live with their parents. Some do so out of necessity: They do not make enough to afford their own home.

Others need to take care of aging parents. Both groups may simply inherit their parents home.

Rising Interest Rates

Rising interest rates have made homes less affordable. If the Fed gets in three more hikes this year, sales are likely to crash. I doubt the Fed gets in more than one hike this year, if any.

Summation

  1. Prices have outstripped ability of purchasers to buy.
  2. Interest rates have risen and affordability has further declined with those hikes.
  3. Despite price increases, existing owners cannot get the prices they need to move to where they want to move.
  4. As a result of point 3, owners pulled supply.
  5. Attitudes of millennials towards mobility, family formation, and debt are far different than that of their parents.
  6. Record or near-record numbers of millennials still live at home, some because that’s all they can afford, others to take care of aging parents.

Bloomberg Econoday and the NAR condensed those points and more down to lack of supply, with the NAR also blaming regulation in regards to new home construction.

Mike “Mish” Shedlock