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Existing Home sales Up On Shrinking Inventory

Jared Levy


Existing home sales were up just 0.4% with inventories being reported as the blame.  The National Association of Realtors said sales increased to a seasonally adjusted annual rate of 4.92 million (4.9 million was consensus estimate) in January from 4.9 million revised in December (December existing home sales were initially reported at 4.94 million units).

This month’s reading was less than stellar, but it appears that inventories may be the issue here; inventories across the U.S. fell 4.9%, or 25% year-on-year, to 1.74 million, which is the lowest since Dec. 1999.

Several reports have noted that realtors are actually pressing the home builders to build.   I guess the sector didn’t get that memo when it dropped 10% yesterday.  

The inventory question can be attributed to both cheap properties for sale being gobbled up by investors for rental property or appreciation and to the average rent rate itself, which has skyrocketed over the last 5 years.

Remember that it’s been both tough and undesirable for many Americans to get a mortgage (rent offers flexibility in uncertain times), but as some rents in major metro areas exceed the cost of ownership, many have begun the hunt for homes, only to find limited property available.

What’s even more interesting is that the median sales price rose 12.9% to $173,600 over the past year, marking the 11th straight month of year-on-year gains according to the NAAR.  This huge jump in prices is due to the shift in quality of homes being sold and further supports the lack of less expensive inventory available.

A year ago, there was still a large amount of cheap foreclosures lingering; today the bulk of the inventory and sales are happening on the higher end of the scale.

Zillow said that 2 million people came out from being under water on their homes in 2012, due mostly to organic home appreciation.  But don’t let that number fool you; there are still 14 million people upside-down on their mortgages and over $1 trillion in mortgage loans on those homes.

All and all I’d say we are headed in the right direction.  Housing values were up almost 6% in 2012, but are only expected to increase 3.2% in 2013 according to Zillow.

Then you have reports from companies like Toll Brothers that missed both revenue and earnings that also add a question mark.

If America is really dying for new home inventory, then why the softness in housing starts reported this week? 

One would also think housing starts would be abnormally high to replace those lost by Hurricane Sandy.

If builders were to add too much inventory, I would have to argue that prices would suffer as well as the space is still fragile.

The housing market is getting stronger, but wonder where we will be 18 months from now, after the sequester, slowing GDP growth and interest rates on the rise.  There are also a plethora of multi-family units developed over the last 2 years and currently being built which may convert to condo once rents start to fall and rates begin their accent; this will have a negative effect on pricing.

How much do you think the average home in America will appreciate by come 2015?

a)      Flat

b)      1-3%

c)       3-6%

d)      6-8%



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