Existing Home Sales Look Soft

Today the NAR came out with the Existing home sale numbers and the year over year action looks soft:

http://www.realtor.org/news-releases/2014/03/february-existing-home-sales-remain-subdued

5 points on the numbers that came out today

- It’s looking more like zero growth in total sales for 2014. While new home sales still have room to edge higher, existing home sales, which are more indicative of what is happening on main street America, continue to be soft

- Inventory is higher, but housing inflation has dampened demand. As I warned back in May of 2013, housing inflation on both fronts (prices and rates) should have been the NAR major concern, not a lack of inventory ( http://wp.me/p1gHkh-ik)

- 35% of the market is cash buyers. This is a pathetically high when one considers that we are in year 6 post-crash and enjoying rates of 4.5% and under. Mortgage purchase applications are down 18% year over year on the 4 week moving average.

- Americans need 28-33% equity in their property in order to purchase a larger or more expensive home, if the desire is to not pay out any additional cash. This is not yet possible for millions of Americans-so the “trade up” market is also expected to be soft

- We have never had a post World War II recovery in housing where median incomes didn’t recovery.. until now.

Great chart from Professor Anthony Sander who has a great blog

http://confoundedinterest.wordpress.com/2014/03/20/existing-home-sales-fall-back-to-2012-levels-and-late-2007-levels-when-the-wheels-came-off-the-economy/

First time home buyers are 28% of the marketplace, down from 30% a year ago. The NAR would say that 40% is a normal level

First time home buyers are going to be light for many reasons including

- lack of jobs

- lack of income

- Student Loan debt

- Housing Inflation on both fronts prices and rates

Recently I wrote an article saying mortgage purchase applications were running out of time. The thesis was that if by the end of March we didn’t see a strong upward move in applications, we would be looking at soft sales. While last year showed strong year over year gains in this index, this year the index has been constantly down year over year .

Another great chart from Professor Sander

http://confoundedinterest.wordpress.com/2014/03/20/existing-home-sales-fall-back-to-2012-levels-and-late-2007-levels-when-the-wheels-came-off-the-economy/

New home sales will have growth this year because they are coming off such a low base from the bottom of the cycle. Existing home sales are looking like we will negative growth if there isn’t a pick up in activity in the next 5 weeks. If we do get a surge in purchase applications in April we may still salvage a flat year but if we get April fooled and see no strong action in purchase applications then it’s all downhill as seasonality starts to kick in. Not quite Housing Nirvana yet… Ivy Zelman