Annual Sales See Highest Level Since 2006
The National Association of Realtors reports existing home sales rose 0.7% in December, with Annual Sales See Highest Level Since 2006
Five Key Highlights
- Existing-home sales totaled 5.64 million in 2020, up 5.6% from 2019 and the most since before the Great Recession.
- The median existing-home price for all housing types in December was $309,800, up 12.9% from December 2019 ($274,500), as prices increased in every region. December’s national price increase marks 106 straight months of year-over-year gains.
- Total housing inventory at the end of December totaled 1.07 million units, down 16.4% from November and down 23% from one year ago (1.39 million). Unsold inventory sits at an all-time low 1.9-month supply at the current sales pace, down from 2.3 months in November and down from the 3.0-month figure recorded in December 2019. NAR first began tracking the single-family home supply in 1982.
- Properties typically remained on the market for 21 days in December, seasonally even with November and down from 41 days in December 2019. Seventy percent of the homes sold in December 2020 were on the market for less than a month.
- First-time buyers were responsible for 31% of sales in December, unchanged from the same time in 2019, but down from 32% in November 2020. NAR’s 2020 Profile of Home Buyers and Sellers – released in late 20204 – revealed that the annual share of first-time buyers was 31%.
“Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic,” said Lawrence Yun, NAR’s chief economist. “What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market.”
Seasonal Adjustments
The chart shows the impact of seasonal adjustments. The total for 2020 was 5.64 million units, but the reported total for December alone was 6.76 million on a seasonally-adjusted annualized basis.
About that Stimulus Package
The housing bubble is back in full swing.
That puts a huge question mark on $2 trillion in blanket Covid stimulus that Biden seeks.
Recall that Trump was in favor of the shotgun approach as well.
Mish
Reminds me of 2006. Back than people believed an economy could be based on people selling homes to each other at higher and higher prices. And then it all ended and many lost their homes. I see a similar outcome.
The actual outcome was far different than what you’re describing, actually.
Almost nobody who had a 30 year fixed rate mortgage with a 20% equity stake was ever even upside down in 2008. Only in the worst markets.
The reason people lose homes is because they can’t service their debt. It has little to do with price.
Here is a chart of nominal and real long term price trends in the US. You might notice that in real terms the uptrend wasn’t broken in 2008…..notice how the big drop was really just enough to kiss the trend line, and then it reversed.
Link to chart
Priced rents lately?
I just bought a decent condo and remodeled it to fit my lifestyle. Total cost was around $160K including purchase price.
The monthly difference between the mortgage/tax/association payment and renting a comparable place is about $1,500 a month. And rents keep going up.
Assuming a total collapse of 30% hits at the end of 2024, I’ll still have broken even versus renting. And in another 10 years it will be 100% mine — with rents and prices virtually guaranteed to be higher than they are today.
Hi Eddie – You said you applied for the new PPT. Do you have some of your tenants not paying rent or is it because of vacancies?
Sorry, The PPP is for my dental practice. That’s where I employee people.
I do have one bit of RE exposure that could qualify for a 2nd PPP (my boat storage business) but I’m the only employee….I run it off a laptop. So it’s hardly worth it, and the business didn’t take much of a hit from COVID anyway.
RE is not my primary business, just the lions share of my investment portfolio.
I have not had a singe default. I use a management company to vet my tenants, and they are very competent in that regard.
Also, I’m just a small player. (Looking forward to growing it, but slowly.)
I only have a half dozen single family homes in my rental portfolio…..no apartments, no Section 8. Just nice houses in the burbs.
My goal is to be able to retire…..I should very soon get to the point where my investment cash flow, combined with SS bennies, will exceed my practice income.
That ain’t bad, and I’ll gladly settle for it in what’s left of this incarnation.
The biggest mistake an investor can make is to place your faith in a simple model, when the reality is complex, with many more variables than most writers examine.
The first thing to understand is that nearly every article you read, especially if it’s taken from the lay press…..or from a website with an agenda (ZH comes to mind)…that the writer probably has some kind of axe to grind. That he is talking his book. This blog is a refreshing exception, which is why I read it.
Any instrument, any asset you can own, should be examined carefully to see how it fits your particular age, risk appetite, goals….and abilities. Discipline is rare here in the gen pop of the US of A.
Leverage is a two edged sword……and many learn too late that it cuts both ways…..but when you use it properly it lets you multiply your wealth rather than just add to it.
Residential real estate (single family houses) presents a case where leverage can be used with somewhat reduced risk….because of the government policy to debase the currency slowly over time……and also because the credit to get the leverage….is available to working stiffs at what might be considered a reduced, even subsidized cost, also because of government policy to promote home ownership.
Cost inflation in housing is not a monolithic phenomenon either. Demographics drive inflation on a local level. Market analysis is important. Some places represent unique opportunities. Others suck.
All of the above…..is why I personally favor housing as an investment. Fwiw, I am not nearly as leveraged as the average homeowner with his 5X 80% LTV loan……but I damn sure am locked in for 30 years.
Housing Inventory is at a record low too. 60% to 70% less than normal.
Inventory is so low the Wall Street landlords are actually building homes to rent out.
While all the people were crying about getting stimulus money the rich quadrupled their money. My simple self grew my 500k nest egg into 5 million dollars. There’s no bubble just have and have nots. It’ll always be this way get with the program as you can’t fight the fed. Oh and no I never went to college but at 29 I’m not crying for hand outs or free college. Its been a bubble since 2009 and won’t ever change poor minds will be poor period. Universal Basic Income is here 10 dollar bread loans on the way too!
Mish, the financial world has changed much since the 2008 bailout. Back then if you recall, the 700 billion that Paulson wanted for MBS bailout was shocking and horrifical. Now days, that is chump change. Look at congress, I cannot find a conservative among the bunch, everyone is a liberal, even the so called conservatives. The economy is in such a mess, in order to get any GDP at all, the free money will flow uninterrupted from last year forward. Print, print, print, that is there answer to ALL problems…
Former Chicago Blackhawks Coach Q recently sold his house in Chicago suburbs. House had $78,000 annual property tax bill for 2019.
I estimate half of the tax bill goes for the local school districts’ pensions, a bottomless pit of wealth confiscation in the Chicago metro area.
Not sure if anyone noticed, but Madigan is out after 36 years. Will anything change? I wouldn’t bet on it….
Nope. That’s as good as lampreys on Northern Pike.
From what I can tell the luxury or near luxury sectors are not faring as well but I haven’t see specific data
This is why…..and why high end houses are probably going to continue to be the soft spot in the market.
“The amount of state and local taxes that homeowners can deduct was capped at $10,000, and the mortgage interest deduction was reduced from $1 million to $750,000 in mortgage debt.
“Not only do the new rules make it less desirable to purchase a multi-million dollar home in high-tax states, it has also motivated some people—especially those with big incomes and big housing budgets—to consider moving to places like Florida, Washington or Nevada, which have no state income tax,” wrote Redfin’s chief economist, Daryl Fairweather, in a release.”
……..or Texas…… 🙂
Inflation, which is stated government policy, targeted directly by the Fed….is about as dependable an economic phenomenon as ever existed…you can criticize it, but you’ll get more out of it understanding how it can work to your advantage.
At 2% inflation, you can use the rules of compound interest to figure out your gains in equity over time on your house…for a ten year holding period the return on your original investment (down payment) would be 22%.
With an 80% LTV 30 year fixed rate mortgage, that gives you essentially 5X leverage, so in ten years the the total gain in equity would be 5 X 22=110%. This amounts to a gain of over 10%/yr.
In the real world inflation has been higher than 2% more times than not…….According to my friend Dan, who researches this stuff, looking at the long term historical record back to 1975……..the average gain in equity for US homeowners just from inflation alone has been 3X over 10 years……and if you include mortgage amortization and changes home prices that are not the result of inflation, the average 10 year return has been 4.1X.
Obviously these are just averages…but if you actually look at ALL possible holding periods, there are almost no cases where homes held for a minimum of one year didn’t appreciate due to inflation…….Dan looked at 395 different possible 1 to 10 year holding periods….and the only period that prices were down due to deflation was 2008.
Even in the very low inflation time periods…..if you run the numbers on all the possible 1 to 10 year holding periods…..the very worst low inflation 10 year case gave an 83% gain in equity…..just from inflation.
(The calculations above do not include mortgage amortization, just to keep the math simple.)
So……what about the risk side? 5X leverage sounds like a lot.
Looking at ALL the possible 10 year historical holding periods Dan figured that the odds of a 5X gain from a house purchased with an 80% LTV were almost 100%.
No guarantees……but those numbers are just the real numbers from my adult lifetime.
What about all the people who lost their ass in 2008?
People wrote a lot about that…but I think a lot of the story is not well understood. You could write a book about the moral hazard of subprime. Several people did, but I never read one that looked at the race issues honestly.
The takeaway for me though…..is that almost nobody anywhere who put down 20% and had a 30 year fixed rate mortgage was ever upside down…..very few……..and in the vast majority of cases in the vast majority of markets…..people who held for more than 10 years did just fine.
All this is taken from Dan’s book. I first heard him speak more than a decade ago now…glad he is finally getting his basics into book form. I think he plans to do three books, with the later ones taking on some more complex topics. Not trying to hawk his book, but I paid a LOT more than the 20 bucks the book costs to learn this stuff.
I think this should be required reading….maybe for college freshmen. I’m linking to it because somebody will challenge the math I just posted…and if so, just read the book and come back and point out the mistakes. I don’t think you’ll find any…..Dan is a former Wall Street derivatives analyst who wrote two books on risk, a long time ago.
link to amazon.com
Here in the Salish Sea home sales are up 59% YOY with the 1-2 million range the most active. Almost all cash….
Foreign buyers or not?
The prices and cash buyer phenomenon makes me think capital flight out of China is still a thing.
A strong financial industry in Vancouver is still making some people rich too, I think.
But plenty of US rich people can see what a great area that is…..I’ve even window shopped BC…..all over, actually, but the coast all the way up to the central coast area looks pretty awesome to me. I’ve looked all the way up to Bella Coola. Wish I had the discretionary cash to be more than a window shopper. I’m a sailor….and a fan of the late Allen Farrell and his China Cloud.
“Foreign buyers or not?” Mostly refugees from Seattle and California. I’m just finishing up the construction of my “age in place” house here on San Juan Island. It’s relatively inexpensive to build here, if you do all the work yourself. Plus we have the lowest property tax rate in the State of Washington. I’ve been at this project 7 days a week for 13 months, relatively unfazed by the covid thing, other than some material shortages. I retired from long haul trucking at 62 yo 8 years ago but I’ve also been designing and building houses (rentals and some custom) for fun and profit since the early 90’s I’ve actually built 5 houses since I retired….
I spent last spring building a boathouse….and then redid the floors in the lake house. Building things is a good way to ride out a pandemic, other than dodging the people at Home Depot who don’t mask.
It gives you motivation…..I kept telling myself to speed up and get it done….who wants to die of COVID with something half done?
I need to find a project to take up my spare time during year two of COVID, looks like. I do have about ten doors at the boat storage that desperately need work. 🙂