‘Unhealthy’ US Housing Market Caps Best Year Since Eve Of GFC

A day after data showed housing starts and permits rose to the highest since the eve of the financial crisis, US existing-home sales came in hot.

The better-than-expected data further underscored my “giant flaming marshmallow” characterization of the housing market.

December’s rise was 0.7%, bringing the annual rate to 6.76 million. The market was looking for 6.56 million. The range was 6.4 million to 6.8 million, so let’s just say this print matched the most optimistic guess from five-dozen economists.

December’s rise came after a “blip” in November, and capped the best year since 2006. Existing-home sales summed to 5.64 million last year. That was up 5.6% from 2019.

“Homeowners are smiling because they’re seeing price increases,” NAR’s chief economist Lawrence Yun remarked.

Not smiling, though, are people trying to buy a home. “The frustration is coming from the first-time buyers who don’t have any housing equity and they’re trying to save up for a down payment,” Yun added.

The median existing home price rose almost 13% in December to $309,800.

At the risk of beating a dead horse, I’ll just briefly recapitulate using the same language (verbatim) from Thursday. The pandemic triggered a flight to the suburbs or, at the least, rekindled the notion of “home as a sanctuary” as someone put it last year. Fed accommodation helped push mortgage rates to record lows, thus stoking the fire.

Ultimately, signs of froth were everywhere in the US housing market by the end of 2020, and some say the market is likely to heat up further in 2021.

That wouldn’t necessarily be desirable, the NAR’s Yun suggested on Friday. “Today’s market is unhealthy,” he said, noting that buyers may be rushing into things without thinking it through. He also fretted that “prices are rising way above income growth.”

You’d be hard pressed to find an indicator that isn’t flashing red. There are so many visuals that one struggles with which one to highlight to best illustrate the point. As discussed here last month, while documenting Toll Brothers’ earnings, a breakdown of data from the Mortgage Bankers Association showed demand for mortgages larger than $766,000 easily outstripped demand for loans to buy more modest abodes.

That pretty clearly suggests that in addition to overall froth, asset price inflation in 2020 and the rock-bottom cost of borrowing helped turbocharge demand for mini-mansions. As Toll Brothers’ CEO put it, the market is “the strongest I’ve seen in my 30 years at [the company].”

Coming back to Friday’s data, the NAR said inventory dropped more than 16% in December from the previous month and 23% YoY. Unsold inventory is at a record low and would last less than two months at the current breakneck sales pace. Consider that in December of 2019, homes generally stayed on the market for 41 days. Last month, that number was 21.

Notably, Yun’s commentary in the press release was glowing. “What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market,” he said.

That’s an interesting juxtaposition with his “unhealthy” characterization on a call with reporters.


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