Dec. 7, primer on Existing Home Sales and trends

By rchrisman@robchrisman.com

Today is the 75^th anniversary of the Japanese attack on the U.S. naval base at Pearl Harbor in Hawai'i where 2,403 Americans died and 1,178 were wounded. There are those that believe that ghosts still haunt "Pearl" but there modern day "ghost towns" in other parts of the U.S. where high vacancy rates, declining populations, and large numbers of vacant properties are creating blight. The list of 20 towns includes places in Kansas, Texas, Oklahoma, Alabama, Illinois, Michigan, New Jersey, Mississippi, and Pennsylvania, Florida, and Indiana.

.Do you know that half of the US residential property equity is controlled by people 62 and older? That's $6 trillion in equity. If you're not familiar with the Home Equity Conversion Mortgage (HECM) product, you could be losing your most valuable retiree and senior customers. Attend a FREE session available only to people new to the reverse industry February 8 at UserCon 2017 in San Diego. 

 "Pending" Home Sales, "Existing" Home Sales, and "New" Home Sales - take your pick. They all show something slightly different, and economists have their favorites. Housing and jobs play critical roles in the United States economy, thus the abundance of various statistics for each one. And trends are more informative than spot numbers every month. What have Existing Home Sales been doing during the last several months? Remember that the data reflect the number of homes that have previously been constructed (and therefore accounted for by the new home sales indicator) and are now being resold. And it is usually broken down by region.

 Back around Easter U.S. Existing Home Sales rose to a 5.45 million seasonally adjusted annualized rate in April from March's 5.36 million (revised up from 5.33 million). The uptick in April was fueled by a 12.1% increase in home sales in the Midwest. That gain, and a 2.1% increase in home sales in the Northeast, offset existing home sales declines of 2.7% and 1.7%, respectively, in the South and West.

 Back then the bulk of the total existing home sales increase was led by sales of existing condominiums and co-ops, which jumped 10.3% to a seasonally adjusted annual rate of 640K units. Single-family home sales were up just 0.6% to 4.81 mln, although they are up 6.2% year-over-year. The median price for all housing types in April was $232,500, up 6.3% y/y. The share of first-time buyers in April was 32% versus 30% in March and the same period a year ago. At the sales pace back then, unsold inventory sits at a 4.7-month supply, which is up from 4.4 months in March. Still, that is well below the 6.0-month supply typically seen during normal periods of buying and selling.

 Skipping ahead to Memorial Day, Existing Home Sales rose 18% in May to 5.53 million. This was the highest pace since February 2007. The median house price was $239,700 up 4.7% YOY. Total housing inventory was at 2.15 million units, which represented a 4.7-month supply. Inventory was still tight. The first-time homebuyer accounted for 30% of all sales, a decrease from last month and last year. Days on market dropped to 32 days, a record.

 When school let out in June they rose to a 5.57 million annual rate in June from 5.51 million in May (revised down from 5.53 million). While existing home sales in June were at a seasonally-adjusted annual rate of 5.57 million, their highest level since 2/07, sales remain 22% off the peak of mid-2005. A key reason; a low inventory that essentially hadn't budged since late 2011. And why might that be? A rise in the number of renter-occupied single-family homes (which aren't for sale) from 10.5 million in 2000 to 17.5 million!

 We sailed through the summer, back when rates were low, and in August Existing Home Sales fell 0.9% as tight inventory depressed transactions. The median home price was just over $240,000 which was a 5.1% YOY increase. Housing inventory was down to just over 2 million homes, which is a 4.6-month supply. First time homebuyers accounted for 31% of sales. Strong job growth and low mortgage rates are pumping up demand, but builders remained reticent.

 Passing Labor Day Existing Home Sales were +3.2% in Sept.  Existing-home sales rebounded strongly in September and were propelled by sales from first-time buyers reaching a 34 percent share, which is a high not seen in over four years, according to the NAR. All major regions saw an increase in closings last month, and distressed sales fell to a new low of 4 percent of the market, and the annualized pace hit 5.47% from a downward-revised pace of 5.3 million in August. The median home price was up 5.6% to $234,200. The first-time homebuyer represented 34% of all sales, which is a big improvement from the 30% - 32% range it had been stuck in for the past year. Inventory remains tight, however with about 2.05 million homes on the market, which represents a 4.5-month supply. A balanced market is closer to 6.5 months.

 September, distressed sales (foreclosures and short sales) represented 4% of all sales, which is a post-crisis low. Days on market ticked up to 39 days from 36 in August. The increase in the first-time homebuyer was good news, and we may finally be seeing the pent-up demand that has been building over the past 10 years finally come to market. 

 And then around Halloween Existing Home Sales rose 2% to a seasonally-adjusted run rate of 5.6 million in October, according to the NAR. September's numbers were revised upward to 5.49 million. October's number is 5.9% higher than a year ago, and the highest reading since February 2007. The median home price rose 6% to $232,200. Total housing inventory dipped to 2.02 million units, which represents a 4.3-month supply at current levels. (NAR considers 6.5 months' worth to be a balanced market.) Days on market ticked up to 41 days from 39 the month before. The first-time homebuyer accounted for 33% of all sales, which is up a couple percentage points from a year ago. Now, if we could just get housing starts up to catch up with the increase in sales we could have a real recovery on our hands.

 Shifting to the economy and rates, data in the last few weeks, for all its faults, continues to show economic conditions continue to gradually improve. GDP was revised in the 3Q and is now estimated to have risen at a 3.2% annualized pace. While business investment was even weaker than originally reported, stronger consumer spending helped the economy to grow at the fastest pace in two years. Personal income in October rose a solid 0.6 percent; primed and ready for the holiday shopping season. Higher expected inflation, however, in the coming months will erode some of the income gains for households. The PCE deflator, the Fed's preferred gauge of inflation, rose 0.2 percent in October due to rising energy prices, pushing the year-over-year rate to 1.4 percent getting closer to the Fed's target of 2%. 

The bond market Tuesday was a snoozer. Rates hardly did anything aside from a little shuffling between coupons and maturities - barely noticeable to LOs or borrowers. I won't waste your time, other than to say that yesterday the 10-year note closed 2 ticks lower to yield 2.39%, and 5-year Treasuries and agency MBS prices were pretty much unchanged.

This morning we've had the MBA's application data for last week (a non-event at -.7%, refis -1%, purchases +4%). The October JOLTS and November Help-Wanted OnLine data will be released at 10AM ET. This morning the 10-year's yield is hovering around 2.37% with both 5-year Treasury and agency MBS prices better slightly than last night's close.