For existing homes, inventory is still key. I expected some increase in inventory last year, but that didn’t happened. Inventory is still very low and falling year-over-year (down 5.8% year-over-year in June). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.
Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.
Of course low inventory keeps potential move-up buyers from selling too. If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.
Also, the NAR reported total sales were up 3.0% from June 2015, however normal equity sales were up even more, and distressed sales down sharply. From the NAR (from a survey that is far from perfect):
Distressed sales — foreclosures and short sales — were 6 percent of sales in June, unchanged from May and down from 8 percent a year ago. Four percent of June sales were foreclosures (lowest since NAR began tracking in October 2008) and 2 percent were short sales.
Last year in June the NAR reported that 8% of sales were distressed sales.
A rough estimate: Sales in June 2015 were reported at 5.41 million SAAR with 8% distressed. That gives 430 thousand distressed (annual rate), and 4.98 million equity / non-distressed. In June 2016, sales were 5.57 million SAAR, with 6% distressed. That gives 330 thousand distressed – a decline of about 23% from June 2015 – and 5.24 million equity. Although this survey isn’t perfect, this suggests distressed sales were down sharply – and normal sales up around 5%.
The following graph shows existing home sales Not Seasonally Adjusted (NSA).
Sales NSA in June (red column) were the highest for June since 2006 (NSA).
This is a solid first half for 2016.