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Thursday, May 22, 2014 11:29 AM


Existing Home Sales "Rebound": Headline Hype vs. Reality


This morning, headline news stories talk of a "rebound" in existing home sales and why rising inventory is good for the market.

Let's separate the hype from reality starting with the hype. Please consider Existing Home Sales Rebound, Inventory Increases.

U.S. home resales rose in April and the supply of properties on the market increased, suggesting the housing market was regaining its footing.

The National Association of Realtors said on Thursday existing home sales increased 1.3 percent to an annual rate of 4.65 million units, marking the second increase in sales in nine months.

Though an usually [Mish note - They meant unusually] cold winter depressed activity, a dearth of homes for sale also stymied demand. Sales are expected to gradually trend higher for the rest of 2014 as job growth and the overall economy accelerate.

And there is reason to be optimistic. The inventory of unsold homes on the market increased 6.5 percent from a year-ago and the median home price increased at its slowest pace since March 2012.

The months' supply increased to 5.9 months, the highest since August 2012, from 5.1 months in March. Six months' supply is normally considered as a healthy balance between supply and demand.
Headline Hype vs. Reality

Let's now compare the hype with the reality, starting with a pair of seasonally adjusted existing home sales graphs.

"Rebound" in Home Sales



Second Rise in Nine Months



Fundamental Reality

There is absolutely nothing in the above charts that remotely suggests a reason to be optimistic or that housing is "regaining its footing".

Moreover, the author failed to discuss interest rates, student debt, investor demand, or household formation.

Here's the reality: Interest rates are up, prices are up, and affordability is down. Investor demand was a huge portion of the market, and rising inventory suggests investors are more discriminating.

Sales may increase in spite of those fundamentals, but virtually nothing suggests that outcome. 

The author describes the increase in supply as "healthy". In context, it's not. While six month's supply may be normal, the more important fact is supply is outpacing demand by quite a bit.

The expected result should be for prices to drop. While I consider that a good thing, most don't. And if the supply trend continues, it will provide evidence of pent-up-demand, not to buy, but to sell.

Finally, given all the emphasis on the "usually cold winter", one might wonder why the rebound was as small as it was, and also why the rebound was "less than expected".

The above article is about as slanted as it gets, including this line: "Sales are expected to gradually trend higher for the rest of 2014 as job growth and the overall economy accelerate."

Did someone from the NAR write that article?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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