Is It Really The Best Housing Market Since 2007 Or Are We Miscalculating?

Every time the headline hitting in front of us saying the ‘housing market is soaring and this is the best time to invest’ keeps reminding us how unfortunate are we of not taking advantage of the low rates.

The National Association of Realtors reported July’s existing-home sales came in at an annual pace of 5.86 million homes. 

This outran the last month’s forecasts for 5.38 million, and smashed face on the last month’s reading of 4.70 million. There are also talks that we have never seen such a big number since 2007!

Are we amazed by this yes we are but is this the right news or is it misleading?

We may see the fancy charts and conclude Yes!  highest levels since 2007, and deduce that the housing market is as strong as it’s been since then. 

In a way, it is.  July’s home sales were definitely higher than any other July for the past 13 years.  But it remains to be seen if more homes will be sold this year vs last, even though the chart refers to the “annualized pace” of sales.

According to The National Association of Realtors, “the annual rate for a particular month represents what the total number of sales for a year would be if the relative pace for that month were maintained for 12 consecutive months.”

So it is absolutely true that the home buying demand was strong and that it might be even stronger if there were more homes on the market. 

But we also need to consider that a huge amount of demand that would otherwise have been seen in the earlier months, were all pushed to July. 

The 3 months total of unadjusted home sales from April through June 2019 was 1.526 million.  

Now compare that to the same time frame in 2020 which saw only 1.255 million, a huge difference of 271000 sales. Adding in July drops that gap to 214000, and if we compare Jan-Jul, the deficiency drops to only 145000.

That means 2020 isn’t quite on track to beat 2019 unless the home sales continue to outperform. 

According to the confidential data from the National Association of Homebuilders (NAHB), we can understand why construction-related housing data is doing so well.  

With few existing homes coming to market, new homes have to rise to meet demand.  And builders are busy in the best possible way.

The year 2018 was very bad, where the rates were high, stocks pitched down, and to add to the agony were the post-tax-cut economic expansions melting away. 

So when 2019 progressed, we were reminded just how powerful it is when interest rates drops – both for stocks and home buying demand and of course to the refinance demand.

No one really knows when rates will bottom out without the benefit of hindsight. With the latest announcement, of a new fee on refinance transactions, it is definitely going to affect the purchase and refinance lending market.

This is the reason that mortgage rates were visibly higher at the beginning of the week even though the bond market said they should be lower.

From here onwards, we expect them to be better connected, but still susceptible to irregularity for the next few weeks.