Friday, May 20, 2016

A Few Comments on April Existing Home Sales

by Bill McBride on 5/20/2016 01:39:00 PM

Earlier: Existing Home Sales increased in April to 5.45 million SAAR

First, please note that once again housing economist Tom Lawler nailed the NAR report.

I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.44 million in April
Second, I'd consider any existing home sales rate in the 5 to 5.5 million range solid based on the normal historical turnover of the existing stock. I've seen reports calling the February sales rate "dismal" and the March sales rate "a strong rebound". Nah. This is just normal volatility. Sales through April are up 5.5% from the same period in 2015.  A solid increase.

As always, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale.

For existing homes, inventory is still key.  I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 3.6% year-over-year in April). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were convert to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in April (red column) were the highest for April since 2006 (NSA).

Note that January and February are usually the slowest months of the year and March and April are the beginning of the "selling season".  This is a solid start to the year.