Surprise! The two-month re-acceleration in US pending home sales translated into a blockbuster month for sales of existing homes.
The “surprise” bit is sarcasm, obviously.
Notwithstanding a rough December for equities, financial conditions eased materially in Q4, or at least according to market-based measures, and during the same period, mortgage rates fell ~90bps from 2022’s highs.
Predictably given pent-up demand, that lured buyers from the sidelines and, alongside unseasonably warm weather, helped catalyze a recovery in housing market activity as well as builder sentiment. Pending home sales, you’ll recall, surged more than 8% in January, three full percentage points above the highest guess from economists. As I wrote late last month, “that suggests existing home sales may inflect imminently.”
And so they did. Existing home sales snapped a 12-month streak of declines in February with an emphatic 14.5% rise, the NAR said Tuesday.
It was the largest increase since July of 2020, and sticks out as anomalous. “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” NAR Chief Economist Lawrence Yun said Tuesday.
That underscores what, prior to the banking meltdown anyway, was a vexing dilemma for the Fed. Housing needs to recover, lest the seven-quarter drag from residential fixed investment should conspire with a downturn in business spending and consumption to push the economy into recession. But too much of a good thing could be inflationary.
As you can imagine, supply is still very tight. Indeed, builders recently cited the dearth of supply as a boon to new home sales. If there’s nothing used to buy, and buy you must, new construction is your only option.
Yun said Tuesday that “multiple offers are returning on a good number of properties.” Again, that’s inflationary, although, in a milestone moment, prices declined on a YoY basis. The 0.2% drop in February was the first decline in US home prices when measured against the same month of the preceding year in 131 months.
That was preordained, by the way. The suspense was spoiled when Redfin data tipped the drop weeks ago.
The rest of the NAR release painted a familiar picture: The US housing market remains very tight but it’s not quite the funhouse mirror it was during the height of the pandemic boom. Last February, for example, the typical property was on the market for just 18 days. That number last month was 34 days.
Just like every other macro data point, the figures will be looked over as irrelevant for the Fed in terms of very-near-term policymaking. And, as detailed here last week in “Nascent Housing Recovery Faces New Test In Regional Bank Crisis,” there are now serious questions about the extent to which stress in the financial sector will serve to curtail financing, both for would-be homeowners and builders.
NAR’s figures showed first-time buyers accounted for 27% of sales last month. In 2022, that share was just 26%, the lowest in history.
According to an article I recently read, Goldman Sachs estimates that 28% of US homeowners have mortgages with interest rates below 3% and 99% of US homeowners have mortgages with interest rates below 6%.
The only way that at least 28%, if not more, of the existing housing stock in the US will turn over is if market rates go down or a homeowner is forced/highly compelled to sell.
E-N : Totally off topic, but we share an interest in organizing the immigration we need to supplement our workforce. Pls check out Florida Senate Bill CS/SB 1718: Immigration 2023
Thanks, I read the bill. Unfortunately, the states are being forced to establish immigration policies due to our federal government’s refusal to legislate this issue.
At a national level, we need organized, lawful immigration that matches the employment needs of the USA with immigration policy and appropriate funding for immigration.
The existing points-based Canadian system provides a good roadmap. A points-based system that assigns points for English language abilities, prior work experience, possession of work skills currently needed in the US, education levels, prior visits to US, existence of friends/ relatives already established in the US who can assist with assimilation, and for lack of a criminal record would put our country on the right track (imo).
My personal belief on illegal immigrants already in the US, is that we need a pathway for these existing employed/employable illegal immigrants. This group of people, by and large, have taken extraordinary measures and have risked everything to get to the USA. The fact that they made it, says a lot about their resolve, their inner strength and their willingness to work hard/endure extraordinary difficulties to have the opportunity for a better life. Our country absolutely needs more people with these types of personal characteristics.
E-N: Could not agree more with all of your points. Immigrants are in general a gift to their new society, exhibiting qualities that more and more Americans seem to lack. Combine that with the increasing dearth of new marriages (and even dating), and we are following Japan, South Korea, Russia and China into a long term population decline.