Home sales have been surprisingly robust in 2016, despite steadily contracting for-sale inventory. Existing home sales have grown on average by about 1.1 percent each month in 2016, even as inventory has fallen by about 1.7 percent each month over the same time. Higher velocity – homes spending less time on the market and buyers spending more – has allowed the market to seemingly defy gravity. But sooner or later, gravity wins.
Home sales have been surprisingly robust in 2016, despite steadily contracting for-sale inventory. Existing home sales have grown on average by about 1.1 percent each month in 2016, even as inventory has fallen by about 1.7 percent each month over the same time. Higher velocity – homes spending less time on the market and buyers spending more – has allowed the market to seemingly defy gravity.
But sooner or later, gravity wins.
Despite early reports of strong sales in September, sales for previous months were revised lower. We expect tight market conditions to continue to pass through to home sales in October. Our forecast suggests existing home sales, (as reported by the National Association of Realtors on Tuesday, Nov. 22), will be flat in October from September at 5.47 million units at a seasonally adjusted annual rate (SAAR) and up 3.4 percent from last October (figure 1). Over the past year, existing home sales have grown at an average annual rate of 2.8 percent, well below the average annual rate of 6.5 percent reported for the 12 months ending September 2015.
While existing home inventory has weighted on the market, new construction has provided a modest boost. New home sales have shot up after remaining stubbornly low for much of the housing market recovery. But with housing starts falling, our forecast points to a 3.7 percent monthly decline in new home sales in October, to 571,000 units (SAAR). This would still be up 19.4 percent from October 2015, but below July and August’s relatively strong numbers (figure 2). The Census Bureau will report new home sales numbers on Wednesday, Nov. 23.
Looking ahead over the next year, our forecasts point to modest growth in existing home sales and accelerating new home sales. For October 2017, we expect existing home sales to total 5.45 million units (SAAR), up 3.1 percent from October 2016, but below recent highs of 5.57 million units reported in June 2016. For new home sales, we expect 615,000 sales (SAAR) in October 2017, up 28.6 percent from October 2016. This would put new home sales at their highest level since January 2008.
