{"id":3738,"date":"2022-12-22T01:55:54","date_gmt":"2022-12-22T01:55:54","guid":{"rendered":"https:\/\/frankbuysphilly.com\/have-we-found-the-bottom-in-existing-home-sales\/"},"modified":"2022-12-22T01:55:54","modified_gmt":"2022-12-22T01:55:54","slug":"have-we-found-the-bottom-in-existing-home-sales","status":"publish","type":"post","link":"https:\/\/frankbuysphilly.com\/have-we-found-the-bottom-in-existing-home-sales\/","title":{"rendered":"Have we found the bottom in existing home sales?"},"content":{"rendered":"
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On Wednesday, existing home sales <\/a>collapsed near the lows we saw during COVID-19 and back in 2007 when the housing bubble burst. In addition, this is the fourth straight month of inventory declining, while days on the market are growingl! Confused by this? I hear you; let’s dive deeper into today\u2019s report.<\/p>\n From NAR<\/a><\/strong>: “In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020,” said NAR Chief Economist Lawrence Yun. “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows.”<\/p>\n One of the housing economic realities that I have been trying to stress this year is that a traditional seller of a home is typically a buyer as well. This explains why total active listing inventory data has been stable over the decades, with the exception of 2006-2011,<\/strong> when those forced distressed credit home sellers couldn\u2019t buy. <\/p>\n Since the credit standards have improved post-2010, we shouldn\u2019t see distressed sellers until a job loss recession happens, even if sales fall noticeably. This happened during the early months of COVID-19, and we have not seen the panic selling in 2022 like some people predicted. <\/p>\n Today, inventory is almost 900,000 active listings below<\/em> the lowest level of the four-decade average between 2 million and 2.5 million.<\/p>\n Inventory is now down again in the NAR report; this is the fourth month of inventory decline, now running at 1.14 million.<\/strong> The all-time lows were around 860,000 <\/strong>this year, and the all-time high was a tad over 4 million <\/strong>in 2007. <\/p>\n <\/strong><\/p>\n We have had two historic events that created a waterfall dive in demand recently; we now have precise data showing new listing data declining with those events, which shows how important that data line is to housing demand. This is the biggest story in housing.\u00a0<\/p>\n For a decade, the traditional view on housing has been that when demand collapses, inventory will spike higher, which is what we saw during the years when the housing bubble burst. <\/p>\n I have never believed in this concept because of how the housing market credit channels work. I have stressed that inventory can grow through a weakness in demand over time. This means what we saw in 2005-2008 with the inventory spike was a historic event that hasn\u2019t been replicated at any time in recent U.S. economic history.\u00a0<\/p>\n We have one data line that clearly shows the credit stress in the system, and it\u2019s been my favorite chart at all my events (see below).\u00a0Without significant credit stress in the system, we can\u2019t ever assume we will see inventory scale spikes where sellers will not be able to buy homes because of a foreclosure or short sale. <\/p>\n We can believe in a forced equity seller premise, where someone loses their job and needs to sell their home to gain access to money. That is a real live talking point, but it will require a job loss recession.\u00a0As we can see below, the U.S. housing market had high levels of credit stress in 2005 through 2008; then, after all that, we had the job loss recession. None of that has ever happened again since 2012. Hopefully, this explains why total active listings are still low, and the NAR data has now shown four months of decline. We have a shot at having total active listings below 1 million<\/strong> over the next two months because demand is picking up during a seasonal inventory decline period.<\/p>\n Below, you can see the decline in sales data, which is not as sharp and short as we saw during COVID-19 but a waterfall dive in demand nonetheless. Mortgage rates<\/a> spiked in March, and then the new listing data started to decline at the end of June. My line in the sand has always been 4 million on the monthly existing home sales prints because it\u2019s been a rare event that sales go below that level post-1996.<\/p>\n <\/p>\n We have broken under 4 million existing home sales only twice post-1996. First was the tail end of the housing bubble bursting in 2008, and second was in 2010 in the aftermath of the homebuyer tax credit when sales were pulled forward and then collapsed.<\/p>\n From NAR: Total existing-home sales waned 7.7% from October to a seasonally adjusted annual rate of 4.09 million in November.<\/em> I am not, nor will I ever be, a fan of a housing market with days on the market in the teens or lower. This means we don\u2019t have enough active listings for buyers, forcing people to bid against each other. I consider this growth year over year from 18 days<\/strong> to 24 days <\/strong>as a plus and a step toward a more normalized housing market.<\/p>\n NAR: First-time buyers were responsible for 28% of sales in November; Individual investors purchased 14% of homes; All-cash sales accounted for 26% of transactions; Distressed sales represented 2% of sales; Properties typically remained on the market for 24 days.<\/em><\/p>\n <\/p>\n Home-price growth is cooling off dramatically, which is another awesome thing about housing this year. Yes, I know I am very biased here. Since February 2022, I have labeled the housing market savagely unhealthy<\/a> as home prices have escalated well above my 23% home price growth model for 2020-2024 in less than two years. <\/p>\n This is why my rants of needing higher mortgage rates went into overdrive back then. However, now we are working our way back to a normal marketplace, which is good, not bad.<\/p>\nHousing inventory<\/h2>\n
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One of the most encouraging signs I see in today\u2019s report, which I also loved in the last report, is that the days on the market are growing. <\/p>\n