Morning Report: Existing Home Sales fall 3/21/16

Markets are lower this morning on no real news. Bonds and MBS are down.

Existing home sales fell 7.1% in February to an annualized pace of 5.08 million. Bad weather in the Northeast and the Midwest may have played a part. Sales are up 2.2% on a year-over-year basis. Lack of inventory and affordability remain the biggest issues. The median home price increased 4.4% to $210,800, and total inventory is about 4.4 month’s worth. All cash transactions were 25% of sales and investor purchases ticked up to 19%. The share of first time homebuyers slipped to 30% as affordability problems and worries about the economy kept many younger buyers on the sidelines.

Given the tight inventory, why aren’t homebuilders aggressively adding supply? Finding affordable land plots and skilled labor appear to be the problem. It is amazing that 10 years after the housing bust, we are still 25% below the long-term average in housing starts. I adjusted housing starts by population, and the graph below gives you an ideal of how much we have underbuilt. We still just barely reached the low of the 81-82 recession, which was the nastiest since the Great Depression. What is going on? My guess is that the government is the problem, via zoning laws in some localities, and general Washingtonian regulatory funk tying up the credit markets. Correcting whatever problem is holding back housing is the difference between a tepid, meh economy of 2% growth, and a recovery where we see 3% growth and wage inflation. It would be nice if someone running for office noticed this and said something. Unfortunately, they only acceptable answer these days is that the financial sector isn’t regulated and needs to be sat on more.

Investor demand for paper isn’t necessarily the issue either, as right now anyone who can fog a mirror can get an auto loan. It is the same old story: new entrants come into the market, take risks that the established players won’t take, and a new market takes off. One thing that is different these days is technology. Lower credit borrowers will get a GPS installed on their car (no, not a nice navigation system, but a transmitter that tells the lender where the car is). Lenders also now have the ability to disable the car remotely.

The Chicago Fed National Activity index reverted to negative territory last month to -.29 from a upward-revised .41. The 3 month moving average is negative, indicating the economy is growing slightly below trend.

13 Responses

  1. Is it possible we are seeing the beginning of a market-based backlash against suburban sprawl? In-fill and brownfield development seems to be going strong in the Bawlmer area as people want to shorten their commutes even it means more expense to acquire land and develop.


  2. It’s Spring. Realtors around here are expecting a big one.


  3. I was talking to a realtor in San Diego over the weekend… The market is super tight at 2 months supply. There are actually more pending sales than houses available right now.



    “But if you believe we can all rise together, if you believe we’ve finally come to the point where we can put the awful legacy of the last eight years behind us and the 7 years before that when we were practicing trickle-down economics and no regulation in Washington, which is what caused the crash, then you should vote for her,”

    The old hound dog is getting Alzheimers in his old age… He must have forgotten how he, his HUD Secretary Andrew Cuomo, and BFF / Budget Director Franklin Raines launched the American Dream Commitment which turned Fannie Mae into a social justice hedge fund operating with 50:1 leverage and practicing Enron-esque accounting..


  5. Brent, we always said, in real estate law that they weren’t making any new land. Of course, sprawl has been the way around that uncomfortable fact in most of the USA.

    What do you do in the NY metro? Hasn’t sprawl just about run its course?


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