Home Sales: Best Ever But Still Not Good?

Posted by Jerry Bowyer on 8/18/20 9:00 AM

The National Association of Realtors just announced the largest ever increase in existing home sales.  Here's another of those 'largest increases in history' or 'most improved in decades' stats. That's the phase we're in. We previously wrote that we would see a bunch of 'worst ever' headlines, then we'd see recovery headlines, and then we'd start to see 'most improved' or 'largest monthly increase ever' headlines. Neither is the whole truth.


Yes, the worst ever headlines were mathematically accurate, but not conceptually, because a self-shutdown involves a fair amount of deferred activity as opposed to eliminated activity. So to compare the metabolism of a medically induced coma to someone who just stumbled into the ER is not really conceptually apples to apples. For good or for ill, we intentionally shut down. We (collective ruling class) wanted a pause in economic activity.


And the 'best evers' are also mathematically true, but conceptually misleading, because they're due to a bounce-back against a really low base. Of course you can get huge increases (like a 21% growth in home sales) as you return towards normal after horrific decreases. So even after this best-improvement-since-we started-keeping-records-in-1968 number, we're still 11% lower than we were this time last year.


Another point to make is that mortgage rates are quite low, so that's stimulative of home buying, but it also is an artificial stimulus, one which involves lowering interest rate returns for retirees to very low levels.


This is the manic-depressive nature of sentiment, what Warren Buffett called Mr. Market, who tends towards being bi-polar, either overly optimistic and greedy and then overly pessimistic. Sentiment tends toward binary, all good or all bad. As someone else said of human nature, "A double-minded person is unstable in all their ways," meaning without grounding in fixed principles, we'll oscillate between opposite poles of sentiment. The truth is that headlines two months ago were probably more pessimistic than the reality and headlines now are probably more optimistic than the reality. That's why we look at all the data. The short term fluctuation, but also compared to long-term baseline.


And one more point, this recovery is not simply a continuation of old trends, it belies a shift in buyer behavior:


"Driving home sales are apartment renters seeking more space, young families moving to the suburbs, and wealthy city dwellers looking for second homes, brokers and economists say."


So far in this recovery, the pattern we've been talking about, a move away from central cities towards suburbs, and other places with less population density seems to still be in effect.


"Existing-Home Sales Climb Record 20.7% in June," National Association of Realtors, July 2020
"U.S. Existing-Home Sales Rose 20.7% in June," Wall Street Journal, July 2020

Topics: REITs

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