Last week, The National Association of Realtors released its Existing-Home Sales Report for October, and the headline screamed a 28.4% drop in existing-homes sales from the prior year. Just looking at the headlines, it would be easy to imagine the residential home market is in full collapse and that a déjà vu 2008 housing collapse period is about to happen. These types of headlines give fodder to the housing naysayers and the doomsayers who are predicting a collapse of the economy.
If you look inside the report and understand housing, the numbers really tell a somewhat different story.
First, the decline from the month prior was only 5.9% and that is with an increase in interest rates to 6.9% with projected sales of 4,443,000 units, which is still a lot of transactions.
The inventory of existing-home sales on the market was projected at 1,220,000 units which equates to a 3.3-month supply of inventory which is considered very lean by historical terms.
Since last year, the median sales price of homes in the United States has risen 6.6 percent to $379,000. This is the third month housing inventories in the country have dropped.
First-time home buyers made up 28% of the transactions with cash buyers accounting for 26% of all transactions.
Here is the most encouraging news- only 1% of sales were distressed sales (foreclosures or short-sells), and that was down from 2% the month before.
Here is the bottom line - these facts tell you clearly this housing market is nowhere near collapse, and what you are seeing in the housing market is the knocking out of the froth or overexuberance created by the pandemic, and the sugar-high of a Federal Reserve policy of low interest rates.
The real issue is that existing home sales would have been stable if there were more affordable homes on the market. Currently, the issue that many homeowners face is that they are now locked into homes due to low interest rates that make it untenable to sell their home for a bigger, better home.
Until you start seeing meaningful year-over-year declines in pricing and acceleration in distressed home sales, you can be assured this is just a housing cycle in which the market is resetting to normal because interest rates are going back to normal.
The fundamentals have not changed.
First, in America and Florida, we have a housing shortage due to a decade of underbuilding based on population growth.
Secondly, there is a big influx of younger buyers who want a home, and the mindset of homeownership of not being important was changed by the pandemic.
Next, unemployment in America is at 3.5% which is at and near historical lows. People are working and that means a recession is less likely.
Builders, especially national builders, have financing tools in their mortgage toolbox they can pull out to buy points down and offer down payment assistance which will spur the markets.
Finally, as housing costs continue to escalate and this issue becomes an even larger one nationally, expect Federal and State government housing plans to emerge.
With the mid-term elections over and the ceasing of all the negative political attack ads talking down the economy, there is a good chance the housing industry may have already gone through its worst part. Don’t be surprised if existing-home sales and new home construction rebound quickly as the second quarter of 2023 cranks up.
This is not 2008, and the housing and real estate market is in good shape. Consequently, if you want to buy a home today, it will be difficult to find the home of your dreams at a price you can afford.
Don Magruder is the CEO of Ro-Mac Lumber & Supply, Inc., and he is also the host of the “Around the House” Show which can be seen at AroundtheHouse.TV.