The pending home sales index for July dropped 0.8 percent vs an Econoday expected gain of 0.4%.
The National Association of Realtors (NAR) also revised June pending sales from +1.5% to +1.3%.
NAR chief economist Lawrence Yun blames a “Staggering” Lack of Inventory.
Last month’s resurgence in pending home sales didn’t last long. Sales ended a three-month fad in June with a 1.5 percent increase in the Pending Home Sales Index (PHSI), but it dropped back by 0.8 percent in July. The National Association of Realtors®(NAR) says its PHSI registered 109.1 percent from a downwardly revised 110.0 in June. The June index was originally reported at 110.2.
The July number was 1.3 percent lower than the PHSI a year earlier and has now fallen year-over-year in three of the last four months. NAR said the West was the only region so show a slight gain.
Lawrence Yun, NAR chief economist, continues to blame the weak market on the lack of homes for sale and called the inventory woes throughout the country “staggering.”
According to Yun, in the past five years, the national median sales price has risen 38 percent, while hourly earnings have increased less than a third of that (12 percent). This unsustainable trend is putting considerable pressure on affordability in some markets – especially for prospective first-time buyers – and is pricing out some households who would otherwise be looking to buy a home. Despite this growing obstacle, Yun says data and feedback from Realtors® continues to confirm that the slowdown in existing sales since spring is the result of a supply problem and not one of diminished demand.
The PHSI is a leading indicator for housing sales. A sale is listed as pending when the contract has been signed; the transaction is usually expected to close within one or two months.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
Existing Home Sales 1971-Present
This is not really a supply issue, it’s a bubble issue. The previous trend was never sustainable. Then the Fed re-blew the housing bubble to the point people cannot afford to buy houses.
Finally, and as I have pointed out numerous times, the attitudes of millennials have changed. Unlike their boomer parents, millennials value mobility and are more averse to huge amounts of debt.
There is little “staggering” about this. Yun cannot see the obvious because it is in his vested interest to not see the obvious.
Mike “Mish” Shedlock
I had a coworker give me a tip about what’s also happened. She went on vacation and rented and airbnb from an ‘investor’. The guy purchased the home solely for rental. Wonder how many homes and condos exist like this around the country now?
Tony Bennett said:
A few miles from my house a small farm and vineyard operation bought a farm house several years ago. Did complete renovation + addition and rents it out. I pass it every day early so I can see cars … if any. The first months? Nothing. Now? A very good month I might see cars there 5 or 6 mornings a month. The nightly varies between $225 and $300. Even assuming all cash for purchase and renovation, once you factor out operating costs you would need a magnifying glass to spot the capitalization rate.
Would be interesting to know how much income from rental goes untaxed.
Some boroughs of London are chasing down those suspected of not declaring for tax.
A black economy.
So a good thing.
KM in California said:
There’s a website called insideairbnb.com that examines the listings data from Airbnb. Here for example is the Seattle area: http://insideairbnb.com/seattle/#
This data appears to support the idea that investor-owned housing is one factor contributing to the housing supply shortage. And about 1/3 of the listings are from hosts with multiple listings, i.e., professional investors.
Tony Bennett said:
“This is not really a supply issue, it’s a bubble issue.”
Before someone mentions “priced to sell … sells” … true, but in a bubble there ain’t much of that kind of inventory. A lot of overpriced stuff sitting … and sitting out there.
“We’re running out of folks that can pull the mortgage on the high-end stuff,” said Borre Winckel, CEO of the local Building Industry Association.
So many boomers I know own single family residential homes as part of their retirement portfolio. It would not surprise me if we see a flood of supply in the coming decade due to offloading of those properties. Until then, what would be the catalyst for another bubble burst? And is this really a bubble when housing prices adjusted for inflation are still well below the bubble peak?
Tony Bennett said:
Love to tell this story.
Around 2010 I was talking to a property manager. Her cell rang and she took the call. The voice on the other end was talking loud enough that she had to hold phone away from her ear. I knew her well enough to ask “what’s up?”. Oh, she said, that was a flipper that got stuck so decided to rent instead. Just found out that renters had trashed the curtains.
A lot of investors have / are going to learn the hard truths of landlording.
Already much of the supply in LA is retired families moving out….
Vic Sage said:
My wife and I purchased an existing home last year in southern New Jersey near Philly and while there were many homes on the market, there was a tremendous lack of homes that were in decent shape and would not require at least some work in order to be livable. We visited dozens of homes in our area and only found two that we would even consider purchasing (FWIW we are solidly middle-class, by NJ standards anyway, so we were not looking in the more upscale areas). Most of these homes were unrealistically priced considering the shape they were in, but looking at prior sales and tax assessments it appeared that just about every home we looked at had come down in value since 2008 and there hadn’t really been any kind of major price increases since then. So while there was “supply” it was not of homes that were of the kind that we wished to purchase, even at the lower-than-2008 prices.
The flourishing real estate markets are in those 5 or 6 counties around Washington DC
where the pelft is.
“Affordability” has nothing to with this, right?
As the housing market bubbled in 2008-2009
Many homeowners packaged themselves up somewhere during that time or so walked away and moved on
Realizing they had paid 9x what the house was worth
The bank who had become the “proud new owner” of the house waited before they made any attempt to sell hoping property values would rise once again
In the end those very same houses sat vacant through the years
And are today in disrepair
Those houses however found themselves a place on the auction block which has become today a very successful housing market business
j c said:
A couple came up to me yesterday afternoon and asked if I was interested in selling my home, they heard it had been on the market a year ago, and it was but I couldn’t get as much as I wanted esp when brokers take their outrageous cut. I was doing a FSBO and I knew they were holding buyers back “it’s overpriced, etc, etc”, it really wasn’t. Now they’ve lost control and people are acting in their own best interests. Brokers act in their own best interest which is different, they’ll take fast & easy sale – unless it’s their own property LOL.
This drive up stuff was happening back in 2005/6 here at Jersey shore. There’s a vacant lot across the street “do you know who owns it, think they’re interested in selling”? Bubble time again.
“Unlike their boomer parents, millennials value mobility and are more averse to huge amounts of debt.” Wouldn’t that tend to depress demand, and at least try to depress price? I am not disagreeing, but it seems to be contrary tot eh rest of your proposal.
Absolutely would tend to depress demand
Yun believes demand is there and inventory is lacking
James Greenberg said:
In Orange County, CA — where I just went through the home-buying process in April 2017 — there were 10-20 buyers offering on every property I was interested in. Prices were being bid up 3-5% over asking.
While Yun may be stretching in applying his analysis to the entire US housing market, in SoCal he is absolutely correct. Demand is an order of magnitude greater than supply.
I understand your point that there would be ample supply if prices dropped (or prices would drop if there were ample supply, lol), but that is not the reality of the SoCal real estate market. Equilibrium today is a seller’s market, for a variety of very complex reasons.
Conscience of a Conservative said:
i haven’t paid attention to lawrence yun’s analysis in over a decade. he’s nothing more than a paid chear leader of the housing market. has he ever provided sober insight on anything housing related?
I agree with Yun, in the neighborhood I’m looking to buy there is a 2 month supply of pre existing houses and virtually no new ones. There are way more buyers than there are houses for sale. What I don’t understand is why prices don’t rise more quickly given the imbalance.
Mish is right about affordability and the problem with millenials. However, according to the blog “Dr. Housing Bubble” baby boomers are not selling their homes and represent a growing segment of the housing market. So maybe there is some truth to the lack of supply issue.
Home and especially auto sales will go up thanks to Harvey.
The idea that people aren’t buying because prices are too high or they don’t want to take on debt is illogical given that supply is historically low. If people aren’t willing to buy then supply would be 9 or 10 months, not 2 or 3. Basic economics.
Where do the people who want to sell move to if where they want to move to is out of their price range?
I don’t know how much of a typical market is “move ups” versus “move downs”, death, divorce, relocation, retirement, etc. But if my house was worth $300k 5 years ago and I was looking to move up to $500k, but now that house is $600k and mine is $375k, there really isn’t much difference in affordability because I’ll have $75k more for down payment.
New supply, as in construction, is based on predicted demand. If constructors don’t see the demand, they won’t build, hence supply drops.
There are many ways to explain low supply… here are a few more:
Michael Douville said:
Here in the Phoenix MSA the inventory is a little thin. In migration is putting pressure on rentals and the affordable home segment of the market. However, low inventory does not decrease demand and I believe the Real Estate Market is slowing. Michael Douville