The strong start to 2017 existing home sales faltered already. February wiped out the 3.3% gains in January, and then some. Econoday blames “inventory” as does Mortgage News Daily.
Existing home sales are on the soft side of expectations, down 3.7 percent in February to a 5.480 million annualized rate and below the Econoday consensus for 5.555 million. Details are mostly weak including a 3.0 percent decline in single-family sales to a 4.890 million rate and a sharp 9.2 percent drop for condos to a 590,000 rate. Year-on-year, single-family sales are up 5.8 percent with condos fading and barely over zero at 1.7 percent.
But total year-on-year sales are up a solid 5.4 percent and still below pricing where the median, at $228,400, is up a healthy 7.7 percent. Supply has been very thin but is improving, with 1.750 million resales on the market for a 4.2 percent gain from January. And relative to sales, supply is at 3.8 months vs January’s 3.5 months. Days on the market are very short, at 45 vs 59 days a year ago.
Existing Sales Stifled By Inventory Constraints
Mortgage News Daily reports Existing Sales Stifled By Inventory Constraints.
Existing home sales burst out of the box in January to start the year out with a 3.2 percent increase over the previous month. Those gains, however, were wiped out in February. The National Association of Realtors® (NAR) said on Wednesday that sales of previously owned homes, including single-family structures, townhomes, condos, and co-ops, retreated by 3.7 percent, to a seasonally adjusted annual rate of 5.48 million units. NAR did not revise their original estimate of a 5.69-million-unit pace in January. Even with the decline, sales still maintained their edge over February 2016 by 5.4 percent.
Sales of single-family homes were down by 3.0 percent to an annual rate of 4.89 million from 5.04 million in January, remaining 5.8 percent above the 4.62 million sales pace in February 2016. Condo and co-op apartment sales plunged month-over-month by 9.2 percent to 590,000 units from 650,000 but remained 1.7 percent higher than sales in February 2016.
Lawrence Yun, NAR chief economist, said buyers in most of the country were “stifled” by the lack of properties for sale and weakening affordability. He said, “Realtors are reporting stronger foot traffic from a year ago, but low supply in the affordable price range continues to be the pest that’s pushing up price growth and pressuring the budgets of prospective buyers. Newly listed properties are being snatched up quickly so far this year and leaving behind minimal choices for buyers trying to reach the market.”
Total housing inventory increased slightly in February, up 4.2 percent to 1.75 million homes compared to 1.69 million at the end of January, but it is still 6.4 percent lower than in February 2016 and has fallen year-over-year for 21 straight months. Unsold inventory is estimated at a 3.8-month supply at the current sales pace compared to a 3.5-month supply in January.
First-time buyers continue to represent a lower share of sales than their historic levels. Those buyers accounted for 32 percent of sales in February compared to 33 percent in January. First-timers averaged a 35 percent share through most of 2016 and have had a near-40 percent share historically.
Individual investors purchased 17 percent of homes in February, two percentage points more than in January but down from 18 percent a year earlier. Seventy-one percent of investors paid cash for their purchases, tying the most recent high in April 2015. Overall, all cash was employed in 27 percent of all transactions during the month.
Six percent of February sales were foreclosures and 1 percent were short sales. The percentage of distressed sales has remained at 7 percent for three straight months and is down from 10 percent a year earlier. Foreclosures sold for an average discount of 18 percent below market value in February (14 percent in January), while short sales were discounted 17 percent (10 percent in January).
Inventory Not the Problem
Inventory is not the problem. Rather, inventory is one of many symptoms of the problem.
- To a great extent, the Fed re-blew the housing bubble. Banks were bailed out, but not homeowners.
- Prices are up far more than wages. Homes are not affordable, especially for first-time buyers.
- Some of those who may want to move elsewhere are priced out because they cannot get what they need from their existing house, so they pull their listing.
- Those who bought at the market peak in 2005-2006 are still underwater in many places. Such homeowners remain trapped. They cannot sell without bringing money to the table.
The Fed is now hiking, making homes even less affordable.
Lack of inventory represents a price mismatch. New buyers cannot afford to buy, and sellers cannot get the price they want or need. As a result, listings dry up.
Mike “Mish” Shedlock
john clark said:
Hey, it’s the weather!
That’s ridiculous!! It’s the Russians!
Trader Joe said:
Absolutely inventory problems here in the NY-tri state area. Towns used to have a pretty decent mix of houses in the following buckets (low) $400-500, (mid) $700-800, and (upper) $1-1.2 mil. Anything sub $750K is getting scarfed up in a matter of days….in fact in my zip, there is, for the first time in my observation…NOT ONE HOUSE AVAILABLE for less then $1 million. And that’s in prime time spring. Every house that was in the $500-750 range that went up for sale in Jan and Feb is SOLD!
Trader Joe said:
Also, the builders that are doing tear-downs have jumped their prices from the “standard” $1.2 million of the past few years…and taken the new price point to $1.5 million overnight.
Supply and demand will work it out, except that we have a system where we attempt to step in and mess with that. We are putting millions of people more into the USA each year (unofficially often). We can’t expect home prices not to rise in areas where expansion is limited by government (agree or not) but the population is increasing. We have maybe 50% more people living here than 50 years ago. Something has to give, and it’s affordability. In the internet era there is no reason why we are packed into urban areas like we are. Instead of building wider lanes on the highways to jam with rush hour traffic, that money would be better spent founding new cities and buidling roads to less populated areas maybe. Or, leave it all alone and let businesses and people decide for themselves that costs are too high in these areas and leave.
Psst……don’t tell anyone…..but that is part of the plan by the overlord
Victor Adam Smith said:
Psst……don’t tell anyone…..but that is part of the plan by the overlord
Tony Bennett said:
“The median existing-home price for all housing types in February was $228,400, up 7.7 percent from February 2016 ($212,100)”
Of course, no mention that median price in January was $228,900. If rates continue to rise look for trend to continue … and once lower comps get into the system …
Trader Joe said:
I think it’s all about fence-sitters getting off the fence as rates finally look as though they might go up — at least in the minds of the great unwashed. So the rush is to get in now before rates rise. Sellers on the other hand see prices going up and either raise theirs or pull the listing or just wait to sell at a higher price…just like investing in Apple — soooo easy, isn’t it? Ha!
In past housing busts, townhouses and condos were the first to slow. Detached homes are always in higher demand, but the gap gets much bigger during a downturn.
Anybody with a morsel of common sense understands the US housing market is going to implode, particularly in markets like Los Angeles, San Francisco, Boston, Louisville, DC, Denver, Pittsburgh, etc.. When it blows it’s going sky-high.
I pity anyone who purchased RE in these areas in the last year or 2.
And when the RE markets go boom – the economy goes with it.
You don’t have to be a economics professor to figure this out.
In fact, don’t listen to the economics professors – 9 out of 10 times they get it wrong.
If you have any common sense, follow your own instincts.
Anecdotal, but earlier this week I met the new director of my department. He’s from California. His family is very excited to move to Denver because he said they find it extremely difficult to enjoy the famous “California lifestyle” in California.
I just hope he figures out that there’s a “Colorado lifestyle” that isn’t anything like California, instead of bringing all that baggage with him. Thousands like him are leaving CA for the “inland” western states, and the onslaught has a high likelihood of screwing up everywhere else.
Denise Croft said:
Don’t forget to include all the inventory purchased by investor groups like Blackstone,that took off much of the first time buyer inventory as well as many SFRs in areas that command high rent. The Fed just fed them money at almost 0% so they bought blocks of homes for all cash. Then here in California the Chinese have been buying thousands of homes for cash and often leaving them empty. The governnment allows this and every other abuse of middle class homeowners. Corporate capitalism anyone?? We the people just don’t matter and if we can be milked for high rents, and thus have to pay more in taxes since there are no write offs, the government wins. People are wholly exploited in the home owning department. This seems like the new normal.
Whoa, it’s private business legally buying assets at market prices! That’s not corporate or crony capitalism. The crony capitalism comes in at the Federal Reserve level, where the money is handed out at below market price. And the high taxes are a function of government’s size and scope, not rents.
Don’t misdiagnose the illness, you’ll wind up with the wrong treatment.
Stuki Moi said:
Interest rates below free market norms, base money growth, bailouts, guarantees, preferential tax treatment of mortgages, zoning laws, bans on living in cars etc., etc. are all nothing but crass crony capitalism. Or, not even really capitalism. Just crony theft. And the above is all the “real estate” rackets of today really are.
It is the new normal, because as you described, this is “exploitation capitalism”.
It is “The Law of the Jungle”, EVERYWHERE out there.
What happens to prices when houses are dumped on the market to raise needed capital. I expect further discounts for cash buyers, which will accelerate the decline.
Inventory is never an issue. Pricing relative to inventory is always the issue. I just purchased a $360K condo on the ocean. The other inventory was all over $400K and up to $600K! All are 3/2 units with some 3/2.5. Hardly dissimilar. The high priced units sit for months and months. Owners are upside down. So they can’t sell for the market price.
“Owners are upside down. So they can’t sell for the market price.”
Precisely. In a nutshell, too.
I’m going to go against the grain on some of the above comments by saying that the housing market continues to be strong. Period.
Bears have been calling an end to the housing climb almost from the beginning of the cycle in early 2012 (5 years ago) . Just Sayin’.
Do not get to giddy even a blind squirrel finds a nut once in a while.
we have 6 homes for sale in this neighborhood. 4 have sold in one month, one in 4 days. boomers are buying to retire. 400K to 1,000K range.WNC in the mtns. most 400K to 500K.
I think the people selling are the smart ones. all say they are down sizing. I did.they see the cat bounce and are taking it.
prices here equal 2007 which was the peak.
lots of “kids” living with parents. even here.
“kids” are used to this life style , but once they buy a hot car and a cellphone bill from hell, they are tapped out.
commodities like food take up the difference. gasoline maxed out at $2,20/gal
it’s got nothing to do with trump……..yet.
just saying fyi from here.
James Greenberg said:
Been in the housing market to buy in SoCal for 2 months now. Most abysmal selection of pre-owned homes you ever saw. In the OC, a complete gut-job fixer 4bd/2ba is going for $629K. Median-priced SFRs are all by the railroad tracks or backing up to freeways. Anything decent is sold the minute it hits the MLS. 10 bidders for each contract. Realtors front-running the market. Tried to convince myself that as long as I could afford the payment it wouldn’t matter. Well, now it matters. This is a mania. I figure on renegotiating my rental lease for another two years.
Medex Man said:
If you really want to owe a stream of unaffordable property tax bills, there are safer places to raise a family than in California.
The water in some CA areas is worse than Flint Michigan. Too much development, agriculture irrigation is a mess (and uses too much water), rivers are overdrawn, and the so-called “environmentalists” in Sacrimento are determined to make their water situation worse with politically motivated dam maintenance (or lack thereof).
California has a better marketing campaign (and fake breasts) — but former smoke stack states have a much better actual environmental track record.
Medex Man said:
If one’s current mortgage is underwater, and the Fed’s bone headed policies have destroyed all savings that new home buyers might have tried to save (a dollar “saved” didn’t keep up with CPI, never mind home prices), and if private equity groups bought up the low end of many markets to turn them into rentals…
who is left to buy a house? No one.
Contractors won’t build a new house on spec only to get stuck with it when prices turn– even assuming they can get a loan from banks that don’t lend. And contractors can get plenty of work fixing up the existing stock of houses… they can afford to wait until the market corrects. No new supply.
And then there are the out of control property taxes that must get reversed (not just curtailed) to save many real estate markets. Only a fool buys in California or Illinois anymore, you don’t own anything, you owe for past public union boondoggles.
“Those who bought at the market peak in 2005-2006 are still underwater in many places. Such homeowners remain trapped. They cannot sell without bringing money to the table.”
2006 is 10 years past now. If you are 10 years into your standard 30 year mortgage you have eaten away 20% of the debt. You are also entering a phase of chewing down the principal must faster. If you wait another 5 years you will have eaten away 1/3 of your original mortgage.
So how underwater is this population and how trapped? Assuming they got their mortgage in 2006 with 0% down payment they could today offer a 20% price cut and still not have to bring money to the table. I imagine there are some who have very high mortgages who don’t want to ruin their credit with a short sale who are just going to bite the bullet and spend the years needed…hoping that maybe a huge price jump can end their misery prematurely. But is this a huge population relative to the real estate market?