KEY DATA: Sales: -2.3%; Over-Year: +1.6%; Prices (Over-Year): 6.0%
IN A NUTSHELL: “The biggest problem with the housing market is a dearth of inventory, which is keeping sales down and prices up.”
WHAT IT MEANS: What fun it must be to have a house on the market right now. Okay, it is rarely ever fun to be selling a home, but if you have to do it, now would be a good time. Yes, the National Association of Realtors reported that existing home sales fell in April. That mirrored the decline we saw in new home purchases. Demand has bounced around, as it usually does and the March pace was the highest in a decade, so don’t read too much into the April fall off in purchases. Sales rose in the Northeast and Midwest, but those gains were more than offset by drops in the South and West. There was no region, though, that posted outsized increases or declines. But the real story was in inventories. While they remain way too low, they have steadily increased for the past four months. Hopefully, that pattern will continue as there are only 4.2 months of supply on the market at current the sales pace. A normal market would have about six months of supply. The lack of homes being sold has affected prices and the sales pace. With few units available, buyers simply cannot find what they want. When they do, in a growing number of areas, they are finding themselves in bidding wars. That is leading to rising home prices.
MARKETS AND FED POLICY IMPLICATIONS: It is hard to buy a home that is not for sale and that is the issue facing the housing market. Builders are ramping up construction, but they are limited in their ability to meet the demand for more affordable housing due to costs. Meanwhile, people who already own homes are still reluctant to sell them. It may be an issue of a lack of equity, lack of mobility, low mortgage rates that they have locked into or the recognition that they simply don’t have to change location just because they no longer enjoy their current location. Essentially, the “churn” in the market, where existing owners pick up and move, just hasn’t come back and that was the key to the health of previous housing markets. It is unclear what will increase the churn, but until it does return, expect sales to rise only slowly while prices continue to jump. This is not a report that will have any impact on investors. Is anyone really trading on a housing market that is supply restricted? As for the Fed, the housing sales trend is generally up, which is what they care about. And the rising prices add to inflation, which buttresses the members’ view that their dual mandate has been met. A rate hike is coming. I would be surprised if the FOMC doesn’t make a move at either the June or July meeting.