How are existing home sales growing in the face of recent negative news about demand? We are told that lower mortgage rates will not have a positive impact on demand. However, if you track forward-looking indicators, it could explain this rebound in demand.
First, we have to understand the context of the rebound: We’re working from rock-bottom levels for home sales, so any small change in the purchase application data could cause sales to rebound. Purchase application data for the past 11 weeks were slightly more optimistic, with 6 front-side and 5 back-side printings. However, a more significant demand boost came in June, when we printed positive application data for three weeks in a row.
That’s all that happens here – nothing more. However, let’s look at the entire report for clues as to what happened today. The image below shows the key data lines in the report.
from Nar: Total existing home sales (completed transactions including single-family homes, townhouses, condos and co-ops) increased 1.3% from June to a seasonally adjusted annual rate of 3.95 million units in July. Sales fell 2.5% year-on-year (down from 4.05 million units in July 2023).
In today’s report, we see a slight increase in demand, which is not surprising as pending home sales last month exceeded expectations. When people expected a negative, they got a positive. But let’s be honest: Pending home sales numbers are at their lowest level yet. I don’t see anything in our housing market tracker data that would guarantee a big jump in future home sales numbers. However, the past two years show that sales have not fallen significantly below 4 million units since 1996.
From Nar: The total registered housing inventory at the end of July was 1.33 million units, an increase of 0.8% from June and an increase of 19.8% from a year ago (1.11 million units).
Inventories are growing every year and we’re getting close to a level where we can feel comfortable looking through the NAR data, unlike our own data altos research corp. data. If the inventory can vary between 1.52-1.93 million, and the supply can last at least four months, then all my talk about low inventory will disappear. Historically, a few decades ago, active inventory traditionally ranged from 200,000-250,000. The housing bubble peaked in 2007 with 4 million people, so the current level is 1.33 million and has yet to return to normal levels.
Nar: 29% of July sales were contributed by first-time homebuyers; individual investors purchased 13% of homes; all-cash sales accounted for 27% of transactions; distressed sales accounted for 1% of sales; properties are generally on the market Keep for 24 days.
One of the reasons I’m relatively pleased with the 2024 housing numbers is that inventory is growing and days on market are increasing year over year. This time last year we were on 20 days, and today it’s 24 days. Nothing good happens in the housing market when days on market are 19 days or less – it means we’re in for a massive credit sales boom, or we simply don’t have enough homes available. There are just too many people chasing too few houses.
All in all, the results of the Existing Home Sales report were in line with my expectations; the only number that disappointed me was the monthly supply figure which dropped from 4.1 months to 4.0 months. Over the past two years, monthly supply levels have peaked around October, so if they peak in June this year, it would be a departure from recent normal levels. However, I encourage everyone to keep an eye on the tracker data as we take all the housing and economic data one day at a time.
