The National Association of Realtors (NAR) reported today on two trends in existing home sales that we have seen for many months: sales are down while total inventory data has fallen straight for the three consecutive months. On a positive note, however, days on the market are no longer a teenager: this metric has dropped from 18 days to 21 days.
I applaud because the theme of the wildly unhealthy housing market that I spoke about in February of this year was the same premise of the housing reset talking point on Federal Reserve uses. Total inventory data started at historic lows in early 2022, creating more bid war action in January and February, peaking in March.
We had to stop this madness before prices exploded more than 20% for another year. The Federal Reserve wanted to see the bidding wars end and days in the market grow. This is happening and in the long run it is good for the housing market.
When I described my 23% five-year growth pattern for 2020-2024, it was to have a marker for when price growth was getting too high. I didn’t have to worry about that in the previous expansion – as my long-term work indicated for a decade, the years 2008-2019 would have the weakest housing recovery ever.
We don’t have a housing bubble or overheated demand data, and neither can we. This article, which I wrote in 2019, shows you the landmark work of the past decade on housing bubble discourse.
However, I knew that the years 2020-2024 would see better demand due to the rising population. It could potentially put us in a horrible spot with stocks, which it has, and prices have accelerated past my five-year price growth pattern in just two years. I remain consistent with my work and my model when I described the housing market in February as wildly unhealthy.
Soon after, the Fed came along with its housing reset premise. Now we bring back the call for balance, which is good. The bright side of today’s data line is that the days in the market have increased again and we are moving out of the teen level.
NRA Research: First-time buyers accounted for 28% of sales in October; Cash sales accounted for 26%; Individual investors bought 16%; Distressed sales accounted for 1% of sales; Properties generally remained on the market for 21 days in October.
One thing about housing data that we all need to be aware of is that year-over-year comparisons will be very difficult until the end of January. Last year, starting in October, shopping app data experienced an abnormal increase in volume towards the end of the year. Even though the data still showed negative impressions year over year due to COVID-19 compositions, the percentage was decreasing and the volumes were increasing.
It was a great time with housing data last year; people needed to make comp adjustments COVID-19. As mortgage rates rose higher and higher, data from October through January would show large negative drawdowns.
NRA Research: Total existing home sales fell 5.9% from September to a seasonally adjusted annual rate of 4.43 million in October. Year-on-year sales fell 28.4% (from 6.19 million in October 2021).
I expected shopping app data to be down 35% to 45% year-over-year from October. It happened as expected; the last impression is down 46%. If the housing data were to drop further, we would see negative impressions of 53% to 57%. The last two weeks have seen positive weekly data of +1% and +4%.
Total housing inventory fell in this report, the third consecutive report that shows total inventory has fallen. Seasonal impacts are the norm with housing, and new listings data is negative 6% year-to-date.
We saw a drop in new listing data when rates hit 6.25% the first time around. This is not positive for the housing market. A traditional seller is first and foremost a home buyer, so not only do we lose inventory for sale when this happens, but we also lose a buyer. This is another factor pushing requisition data below 2008 levels. However, as we can see, inventory data is very different from what we saw in 2000, 2005, 2008, 2012, 2015 and 2018.
NAR lists the current inventory at 1.22 million, while historical normals are between 2 and 2.5 million, with a peak in 2007 of just over 4 million. Monthly supply increased from 3.2 months to 3.3 months.
Price growth has slowed more significantly, similar to other periods when mortgage rates have risen. However, the extreme level of price growth we saw earlier this year was wildly unhealthy, so this news isn’t just welcome – it’s needed to restore balance.
NRA Research: The median existing home price for all housing types in October was $379,100, a 6.6% gain from October 2021 ($355,700), as prices rose in all regions.
With today’s report, we see the continuing trend of demand destruction due to higher rates and a lack of growth in new listings. The seriously unhealthy housing market is reverting to a bed and breakfast market, boring and balanced, but still needs time.
Regions of the country at 2019 inventory levels are already off my wildly unhealthy list; the others are still struggling to get more new active listings. The Federal Reserve can help the housing market by saying a pivot phrase; however, it’s not there yet, and housing market inflation is their big concern.
For next year, however, rent inflation data lags CPI data and is already showing a slowdown. We also see the inflation growth rate falling in other lines of data.
If mortgage rates can come down towards 5%, we can see some stabilization in the housing data which is now operating from a much lower bar. This is the way out of the real estate recession that began in June.
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