The National Association of Realtors (NAR) reported today on two trends in home sales that we have seen for many months now: declining sales while total inventory data has fallen directly for three straight months. On a positive note, however, days on the market are no longer teenagers: the metric has increased from 18 days to 21 days.
I cheer because of that the housing market is savagely unhealthy theme I talked about again in February this year, the premise is the same reset housing talking points Federal Reserve uses. Inventory data started at its lowest point in early 2022, creating more bidding war action in January and February, peaking in March.
We need to stop this madness before prices rise more than 20% for another year. The Federal Reserve wants to see the bidding war end and the day on the market grows. This happens, and in the long term, this is a plus for the housing market.
When I outline my five-year 23% growth model for 2020-2024, it has a marker when price growth is too hot. I didn’t have to worry about this in the previous expansion – as my long-term work stated during the decade, the years 2008-2019, will have the weakest real estate recovery.
However, I know the years 2020-2024 will see better demand from the demographic bump. This potentially put us in a horrible place with inventory, which it did, and the price accelerated beyond my five-year price growth model in just two years. I remain consistent with my work and model when I described the housing market in February as unhealthy.
Soon after, the Fed came up with its housing reset premise. Now we get a call back for the balance, which is great. The positive aspect of today’s data line is that the days on the market are increasing again, and we are coming off the teenage levels.
NAR research: First-time buyers were responsible for 28% of sales in October; All-cash sales accounted for 26%; Individual investors bought 16%; Distressed sales represent 1% of sales; Properties typically remain on the market for 21 days in October.
One thing about housing data we all have to be mindful of is that year-over-year comps will be very challenging until we get to the end of January. Last year starting in October, the purchase of application data had an abnormal increase in volume towards the end of the year. Although the data still shows negative year-over-year prints due to the compilation of COVID-19, the percentage is decreasing and the volume is increasing.
It’s a funky time with last year’s housing data; people need to make a COVID-19 comp adjustment. yip mortgage rates rose more and more, the data from October to January will show large negative prints.
NAR 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 decreased by 28.4% (down from 6.19 million in October 2021).
I anticipated buying application data to have 35% to 45% year-over-year declines starting in October. That has happened right on schedule; last print down 46%. If the housing data takes another leg down, we will see negative prints of 53%-57%. The last two weeks had positive weekly data of +1% and +4%.
The total housing inventory fell in this report, the third report in a row that shows the total inventory has decreased. Seasonal impacts are the norm with real estate, and new listing data is negative 6% this year.
We saw the new listing data drop when the rate got to 6.25% the first time. This is not positive for the housing market. Traditional sellers are primarily home buyers, so not only do we lose inventory for sale when this happens, but we also lose buyers. This is another factor in driving the purchase application data below the 2008 level. However, as we can see, the inventory data looks very different from what we saw in 2000, 2005, 2008, 2012, 2015 and 2018.
NAR list now inventory at 1.22 million, while historical normals range from 2 million to 2.5 million, with a peak in 2007 slightly over 4 million. Monthly supply increased from 3.2 months to 3.3 months.
Price growth has cooled, similar to other periods when mortgage rates rose. However, the extreme level of price growth we had this year was savagely unhealthy, so this news is not only welcome – it is necessary to bring balance back.
NAR research: The median house price for all housing types in October was $379,100, a 6.6% gain from October 2021 ($355,700), when prices rose in all areas.
With today’s report, we see a continuing trend of damaging demand from higher levels and a lack of new listing growth. The bad real estate market is returning to the B&B market, boring and balanced, but it still needs more time.
Parts of the country at the 2019 inventory level are off my unhealthy list; the rest are still struggling to get more new active listings. The Federal Reserve can help the housing market by saying a sentence about the pivot; however, it is not yet there, and housing market inflation is their big concern.
Going out for next year, though, the rent inflation data is lagging behind the CPI data and has shown a cooldown. We see inflation growth rates falling in other data lines as well.
If the mortgage rate can fall to 5%, we can see some stabilization in the real estate data working from the lower bar now. This is the way to get out of the housing recession that started in June.