Despite Steven’s constant “sky is falling” rhetoric, I actually enjoy his videos, as they are data-laden and always interesting.
I am bringing him up today because his doom and gloom predictions are mirrored by so many other macro analysts, and they seem to be surging as of late.
So I am going to again defend the housing market in an effort to help prevent these guys from scaring away buyers. Ironically though – this may not be necessary, as we have seen a huge uptick in pre-approvals and contracts lately.
Many of the doom and gloomers focus far too heavily on new builds, as opposed to existing home sales, which represent almost 90% of the overall housing market.
They also miss the fact that we are not seeing a surge in inventory – which is something I have discussed numerous times, e.g. It’s the Inventory…(Why Values Are Not Crashing).
I am borrowing today’s analysis from Barry Habib of MBS Highway fame once again. I love Barry’s analyses because his track record has been so accurate, as most readers know. But I also like Barry’s analyses over those of other macro analysts, because he focuses on the housing market every day and every year and thus understands its nuances much better than other macro analysts.
Barry focused on the recent NAR Existing Home Sales Report for December, and shared the below chart to illustrate his points.
Existing home sales were down 1.5% in December compared to November, BUT: (1) December is always a slow month; and (2) most of December’s closed sales were a result of people shopping in October when rates peaked above 7%. If rates were at today’s levels, the numbers would have been stronger.
In regard to the median home price dropping 1% from November, Barry reminds us again that “median home prices” do not always reflect appreciation or depreciation. Median home prices merely reflect the midpoint of home prices, so if there are fewer high-priced homes selling (like what is happening now), the median home price will fall even if there is no depreciation.
Inventory is another thing Barry loves to focus on, but in the correct way – as we are NOT seeing surges in inventory.
Current inventory is only 970,000 units – which is not even close to the 4 MILLION UNITS we saw in 2007!
In addition, when you subtract “pending sales” (which are included in inventory numbers), active listings are under 700,000 – which is only a two-month supply (far below the “normal” 4.6 months of supply).
Barry remains very optimistic about housing for many reasons, including: (1) inventory remains tight; (2) mortgage applications are up; (3) rates are likely to continue to fall; and (4) builder sentiment is up.
Because of all these factors, Barry believes we will see appreciation next year somewhere in the 3% to 5% range (much like CoreLogic’s prediction).
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