Riddle me this: How can home sales grow when we have no homes to buy?
When a monthly home sales print fails to meet expectations the excuse often used is that inventory is too low to meet the demand. But not so long ago, for more than a year we had negative year-over-year monthly data with inventory rising on a year-over-year basis. Now we have the opposite scenario. Today, I give you an all-time high in pending home sales, according to NAR, along with cycle lows in inventory. Apparently we have no homes to buy along with this index hitting an all time high! Riddle me that!
Keep in mind, however, that the spike in the pending home sales index doesn’t mean we are going to have an existing home sales boom like they did during the housing bubble years. We are far from those levels even with purchase applications up 22% year over year according to the most recent report from the Mortgage Bankers Association.
Today’s pending home sales data adds another week to the 19 consecutive weeks of year-over-year growth in purchase applications. We are steadily working our way toward a positive year for existing home sales. Even though purchase application data are averaging over 20% year-over-year growth in the last 19 weeks, we still need to make up for the nine negative year-over-year prints we had at the beginning of the COVID-19 crisis.
The purchase application data provide a 30-90 day preview of what to expect in existing home sales. Remember, our best existing home sales prints in the previous expansion occurred in the fall and winter, not the heat months of spring and summer. Sales still have legs to walk higher as we have seen for the past four months.
Context is key. We are working from the mother of all low bars this year due to COVID-19. At some point in the future, the data will smooth out and we can work from more normal conditions. I go back to my main theme for housing for the years 2020-2024 and that story is about demographics and mortgage rates. The February housing data before COVID-19 hit our shores showed a break-out performance for that month compared the past 12 years.
If there was no COVID-19 we could have expected to end the year with existing home sales in 2020, 400,000 -500,000 higher than in 2019. Pre-COVID February data had nearly 40% year-over-year growth in housing starts as well. So keep in mind that this housing market growth story was in the works before COVID-19 hit. Now we just need to catch up for lost time.