Yesterday the NAR reported that Existing-home sales jumped 14.5% in February to a seasonally adjusted annual rate of 4.58 million. Sales are still down a lot year over year, but the one-month increase was historic.
February’s jump in Home Sales was the 3rd largest in the last 23 years. The only 2 larger increases came during the boom associated with Covid. 4 of the 10 largest jumps came in the wake of the Housing Crisis. All 10 came just before or during enduring home price increases.
If you have been reading the headlines about housing, however, you would think it was the end of the world. Below is a smattering of only the most recent troubling housing articles from the Wall Street Journal and the Atlantic to Barrons and Fox News.
US real estate market in ‘big trouble,’ expert warns – Fox News 1/13/23
https://www.foxbusiness.com/real-estate/us-real-estate-market-big-trouble-expert-warns
The Housing Market Is Worse Than You Think – New York Times 11/4/22
https://www.nytimes.com/2022/11/04/realestate/housing-market-interest-rates.html
The Housing Market Has Gone From Bad to Worse – The Atlantic 11/4/22
Is the housing market about to crash? Here’s what experts say – Bankrate 3/13/23
https://www.bankrate.com/real-estate/is-the-housing-market-about-to-crash/
January’s strong jobs report could spell trouble for the housing market – Housing Wire 2/3/23
A Big Chill Is Here for the Housing Market. Next Year Could Bring More Trouble. – Barrons 12/2/22
https://www.barrons.com/articles/housing-market-mortgage-rates-home-prices-51669939424
Why The Housing Market is in Big Trouble. – CNBC 3/10/23
40 Cities That Could Be Poised For a Housing Crisis – Banking Rates 3/11/23
https://www.gobankingrates.com/investing/real-estate/cities-in-danger-of-housing-crisis/
It’s Time To Start Worrying About The Housing Market Again – Financial Samurai 3/7/23
We have been telling clients since the beginning of 2020 that the housing market and home prices will remain strong overall until the drastic shortage of homes is corrected.
TPA has been consistently bullish on housing as prices have increased by 33%. World Snapshot Reports:
- 3/12/20 House Prices Should Remain Stable For The Long Term
- 11/13/20 History Tells Us The Housing Market Will Be Fine When Rates Rise
- 4/28/21 This Is Not A Housing “Bubble”
- 11/23/21 Have No Fear Of Housing.
- 1/24/22 The stock market may look like hell, but housing will remain strong for the long term.
- 4/1/22 House Price Increases Are In Line With Historical Patterns
- 6/8/22 Conditions Do Not Exist for A Weak Housing Market
- 10/7/22 The Truth About Housing Inventory
- 10/18/22 Today’s Housing Market – Why 2022 is not 2007.
- 1/26/23 The Overwhelming Argument for House Price Stability
It may be helpful to look at Home Sales historically. The chart below shows Existing Home Sales since 2000. In the past 23 years, home sales have seen highs of over 7 million a year in the boom years of 2005-2006 and over 6 million per year during Covid. Sales have dipped below 4.5 million in the housing crisis of 2008-2009, briefly in 2011 in the wake of the crisis, briefly at the start of Covid, and recently as mortgage rates doubled in a year. The chart shows that the range has been about 4.2 million to 6.3 million. We are currently near the lows. So, if history is any guide, the next move is higher.
Finally, we provide the table below that will be familiar to most of our readers by now. The table below shows the origins of the current housing shortage and provides an analysis of the current situation and what it would take to get to an equilibrium between supply and demand. Using data provided by the St. Louis FED since 1959, the table looks at housing starts each year and calculates the average housing starts from 1959 to 2007 at 1.547 million homes. Using this 48-year average and the housing starts that follow, we can determine a housing deficit each year and a cumulative housing deficit.
From 2007 to 2022 the cumulative housing deficit has increased to over 7.4 million homes. That is one of the main reasons for the incredible price increases seen since the start of 2020. It is important to see this huge deficit and not an irresponsible consumer or rampant speculation as the true reason why prices have risen. It is an extreme lack of supply that has caused house prices to soar.
It is also important to understand the herculean task of bringing supply and demand in line. The largest number of housing starts was 2.36 million homes in 1972. This is far above the housing starts for 2022 of only 1.55 million. Even if somehow home builders were able to replicate the starts of 1972, the table below shows that it would take about 9 years to get back to the long-term average supply.
Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.
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