The drop in existing home sales and what’s happening with inventory

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about existing home sales and inventory levels.   Related to this episode:   Existing home sales drop 8.4% in January as winter weather slows market  https://www.housingwire.com/articles/existing-home-sales-january-drop/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   To learn more about Trust & Will visit trustandwill.com   The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:10Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about existing home sales

00:15and inventory and what to make of the most recent numbers. First, I want to say thank you to our

00:21sponsor Trust in Will for making this episode possible. Logan, welcome back to the podcast.

00:26It is wonderful to be here. And saying I told you so just doesn't cut it with today's existing

00:33home sales report and a big headline miss, but not shocking to me. And, you know, before the report

00:43came out a few hours, I was putting on Twitter that, you know, you can even have a sub 4

00:47million

00:48print because whenever in the NAR kind of didn't understand this when they were trying to explain

00:55it on X as well, whenever you're working from an elevated levels of sales in, you know,

01:03for December, okay, and then you have the holidays, the two weeks in the middle,

01:11the thing's going to just completely shut down. Happens all the time, actually, but it depends on

01:17where your sales levels are. So in this context, a lot of people thought it was the weather and that

01:23January and February's existing home sales report are going to get hit by the weather. But

01:28we didn't even write the tracker the last two weeks of the year or the first week,

01:32just because it's going to be useless because people are going to make something

01:36big out of it. And then you have to wait for the snow thing to get out of the date

01:40of line,

01:41which could be probably March, which means the reports that come in April. And then you have

01:45to put the rebound effect into that because as soon as, you know, we got the year started,

01:51things just went back kind of to normal. Now the closings and the lack of people going out and doing

01:58stuff would be seen in the data. And then you just move on from there and it just perfectly looks

02:05fine. I know the inventory data on the NAR has it as a slight decline, but, you know,

02:10it actually was revised higher in the previous month. So 1.22 million active inventory to start

02:17the year. For me, it's always been the same. You get 1.52 to 1.93, four months of supply,

02:23we're good,

02:24right? There's no shortage. This is the same thing I talked about in the last decade. We have enough

02:29supply out there to keep the supply and demand equilibrium going and it's perfectly fine out there.

02:35So for you, this isn't a surprise and this doesn't change anything long-term. It's just a blip.

02:39There is a reason I don't write the tracker the last two weeks of the year and this, and this

02:44is

02:44one of these things that if you've seen this happen time to time and December's report was

02:51beating estimates on the upside and then the January, now you have to deal with the snow impact.

02:56That's just late closures and some people not looking until things, and then we just move it

03:00from there. And that's how we should look at it in that context. I know a lot of people, well,

03:06you know, that's a big drop and then why is medium price up and all this? You got to take

03:12this stuff and just throw it out. Well, I mean, to your point, there's a rebound,

03:17right? So that all those people who didn't close because they couldn't get out of their houses,

03:21then it like piles up. It is. It's just on the economic side,

03:24you might have people that make too much of it on the down and upside. You just focus on the

03:29trend

03:30out there. And then again, we've always highlighted the tracker data that has issues

03:36with a holiday, like just one day off. And you put Christmas and New Year's in the middle of the

03:41week. We should just never do that. We should just never have that. I don't know. I don't mind

03:46having Christmas and New Year's during the week, but you have to take it in context. And just like,

03:51you know, the jobless claims data spiked because there was snow in there. It was somewhat elevated this

03:58week. There's still some slightly slow impact and you just got to kind of work through it.

04:03So you just want to keep an eye on the prize and the forward looking data and how does it

04:07work when

04:07everything's normal? We're fine this year. So again, the forecast for 2026, 237,000 more existing

04:15home sales. If rates stay six and a quarter under so far, that's in there. And we just kind of

04:20take

04:20it with that. And, you know, you throw a short, but still a government shutdown in there. It's kind of

04:26confusing the data. The government shutdown. Yeah. It's just the government shutdown. Those

04:31things really impact like the DC market. But the worst part of that for me is just you don't get

04:40the data, you know, like jobs Friday on Wednesday, man. Like, what was that about? And speaking of

04:46which, the 10-year yield is down just a smidge this morning. So that initial spike that we saw

04:53off the 130,000 jobs. And we wrote that article highlighting a lot of things. Not shocking,

05:00like there's no drama with mortgage rates. Affordability got better, right? You're not

05:06thinking of like a boom in demand, but you can grow sales from here and out where in the last

05:13three

05:13years kind of wasn't the case. And you just take that in context. If rates had made like another

05:19leg mover, which I don't believe is the case until you get a recession, then that's a whole

05:23different subject. Because whenever you have a new cycle with rates below any period of time in the

05:29previous one, things change because affordability gets naturally better in that. But I can't get

05:35below 5.75 unless you have a recession with neutral policy. So it looks normal to me in that context.

05:42So I think it's interesting. This echoes what you said at the Housing Economic Summit, which is like

05:47last year, your theme was kind of like the worst is over. Let's rebuild from here. And this year,

05:53it's like there's no excuses because really we're looking at maybe a new normal market,

05:58but lots of things in place that should be able to get some traction for people.

06:03It's kind of four key points. Affordability got better on its own just because inventory is up

06:08and price growth. The whole concept of team higher rates in February of 2021 is like this needed to

06:15happen. You can't function with inventory like here. This is not like what we've dealt with in

06:19the past few decades. This was a historical shortage for a very brief amount of time on

06:26historical basis. But getting inventory up is a must. There's no ifs, ands, or buts. You do not want to

06:32work from that low of inventory. Now we're there. So we've got affordability got better. You have a lot

06:37rate cuts in the system now. That does matter. The mortgage spreads, good, you know, on that context.

06:45And also you have less volatility. Like what we've been dealing with in the past is that rates get

06:51lower, you get a sales growth, and then rates shoot up off 7%. You ain't going to get much

06:55traction. That's what the data shows. So we have these flows in data. But if you take this backdrop

07:02to be something year-round, then you could grow sales out there. That's the history of housing

07:08economics. Like I just gave a presentation in Atlanta showing this to be the case. It's always

07:13interesting to see people's visuals when they look at existing home sales on a long-time format. And,

07:19you know, you look about the 80s and how unaffordable it was then, but all of a sudden rates take

07:24a big

07:24move lower. You know, you're not going to get two and a half, three and a half, or four and

07:28a half.

07:29But just getting down to six, you could get some traction. And, you know, we don't want to see a

07:34recession. You know, you don't want to be rooting for recession for lower rates. But if that does

07:39occur, then all of a sudden you got over 162 million people working. There's not enough people

07:44that you could get fired. I mean, hopefully COVID showed that that'd be the case. But then you're

07:49working for much lower rates. The affordability data gets even better. And that's how you have sales

07:54growing post-recessions during that time. When you look at inventory, is 2019 sort of the gold

08:00standard for you now looking back? Or you're like, you know, when you say, yeah, we're back,

08:04are you looking at 2019 for that? Yes. So to me, it's always been the same. I've had the same

08:08premise,

08:09which means I kind of disagree with everyone's shortage takes on numbers. 1.52 to 1.93,

08:17four months supply. We're good. End of story for me. There's no ifs, ands, or buts. So because

08:23we're working from a little bit of an elevated level, the seasonal peaks can get us there.

08:28And I'm fine as long as monthly supplies above four months. If you're below 1.52 million,

08:34and you have inventory below four months, that's not a functioning marketplace. Now,

08:40some of that that's happening right now at 1.22 with less than four months, that's the seasonal aspect

08:46of inventory. But I need to see the seasonal peak period. I'm completely fine. Price growth is barely

08:52happening, right? Healthy. All of this is healthy, right? Because inventory is up. So we don't have

08:58to worry about people going, okay, I have rates at 6%. Oh, prices are going to escalate. No, they're

09:01not. That's a defeatist mindset also. Like this is not the country you want to live in. Like there

09:06are other countries you could go there and just want to be a terrible economy and have deflation,

09:10whatever. That's not us. So I love it. I love it. I loved it. I love seeing the inventory growth

09:16that we saw last year with our tracker data. Obviously, things have changed. The growth rate

09:21of inventory has gone from 33% down to 9, 8.76. But I mean, considering everything we've been

09:28through, this is the best you could hope for, right? If inventory was lower and price growth was

09:34hotter, bad. I'm sitting here going, no, no, no. You don't gain an advantage, right? Advantage,

09:40disadvantage. You have to gain an advantage by affordability, getting better by prices and

09:46inventory growing up to go with wages. And then you can put the rate factor into it.

09:51But yeah, I mean, I love it. I know a lot of people don't agree with me with that. They

09:55still

09:55say there's an inventory shortage. You have different numbers. You have 5 million, 3 million. I look at it

10:01as active listings because all I care about is that. I don't care about the total units or what

10:07inventory is here. I don't bleep about that. All I care is that there is a supply and demand

10:13equilibrium that works. That's normal, right? And this is as good as you're going to get in this

10:19situation. So the whole team higher rate concept worked. It took a while, but we got here.

10:27So I hear what you're saying about you have this level that works. So I guess the different way I

10:32would ask that is like, when does that compare to what is a comparable time period when it's this

10:37supply and demand equilibrium? Is that 2019? Is that earlier? Do you not tie it like that?

10:43You know what? Normal active listings going back decades is 2 to 2.5 million.

10:50Okay. So still we're low.

10:52I've seen cycles in the past where 1.52 to 1.93 work fine because there isn't a pricing pressure.

11:00Now what happens is affordability gets better over time with wages and incomes and households and

11:06everything. And then where rates go lower, you can get yourself back into a situation where home

11:11prices can maybe go higher than what they should. But I'm not worried about that because affordability

11:17is still an issue. So we're good here. We're good here. I don't see inventory being negative in any

11:24big fashion this year or prices growing anything in a big way out here. So this is what we call

11:31balance. Balance and boring. Good. Right? Savagely unhealthy. No good. Not a good thing.

11:38So I had Mike Simonson on a couple of weeks ago. We were talking about specific parts of the country

11:42because we know that there are parts that South Florida has, especially in the condo market,

11:48more inventory than people would like. There are definitely parts of the country. And then you have

11:53parts where there's not enough inventory. When you look at it on the national level,

11:57do you ever think about those kind of hotspots and how that affects the overall picture?

12:02So to me, to get a more functioning marketplace, inventory has to grow. Now, places like New Jersey

12:09or Connecticut just are not healthy to me. But places like Florida are a healthier marketplace because

12:15you do have some type of price discovery because active inventories. I know a lot of people say,

12:20well, inventory is down in Florida and sales are up. Okay. Inventory is down from an elevated level.

12:26So context is key. But those to me are functioning supply and demand equilibrium marketplace.

12:32What we saw in areas, anybody who's under 2019, I just don't think is healthy.

12:37So that's still a majority of the country to a degree. But when we're back to normal,

12:44right, that's just how things work. Housing is so sticky and it's not a very liquid marketplace.

12:51But when you get supply up, then the buyer and seller are both in the ballgame out there. So of

12:58course, Florida and Texas were the big drivers. Colorado is another one of them. But I look at

13:04those places as more healthier marketplace for the supply and demand equilibrium to work, which is,

13:08it's a little bit different thinking than other people. But that was the whole concept of team

13:13higher rates. Like 2020 wasn't healthy. Even though sales were up. 2021 was really not healthy.

13:20Even though sales were up. But 2022, early part of it, done. It was like February, I was done with

13:27that marketplace. This thing needs to blow up because we are savagely unhealthy.

13:32We're much different viewpoint now. And that's one of the reasons that you are optimistic about this

13:37market and especially the spring market is like, we've finally got some of these variables back to

13:42where it can go back to like why people buy and sell homes traditionally, how you buy and sell

13:49homes, how you help people do that, and less of these outside forces.

13:53Yes. Balance is a good thing. And that's what we see in the housing market.

13:57Logan, thank you so much for being on. I know you're on the road. Always appreciate you. And we will

14:01talk

14:01again soon.

14:03Logan, thank you so much.

14:07Logan, thank you so much.

14:08Logan, thank you so much.

14:09Logan, thank you so much.

14:10Logan, thank you so much.

14:11Logan, thank you so much.

14:11You

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