Wednesday, May 24, 2017

A Few Comments on April Existing Home Sales

by Bill McBride on 5/24/2017 11:59:00 AM

Earlier: NAR: "Existing-Home Sales Slip 2.3 Percent in April"

Two key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus.  The NAR reported sales of  5.57 million SAAR, Lawler projected 5.56 million SAAR, and the consensus was 5.67 million SAAR.  See: Lawler: Early Read on Existing Home Sales in April

"I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.56 million in April, down 2.6% from March’s preliminary pace and up 1.5% from last April’s seasonally adjusted pace."
2) Inventory is still very low and falling year-over-year (down 9.0% year-over-year in April). More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

I started the year expecting inventory would be increasing year-over-year by the end of 2017. That still seems possible, but inventory will have to start increasing a little pretty soon.

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 below April 2016. (NSA).

Note that sales NSA are now in the seasonally strong period (March through September).

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through April 2017. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.