How to Think About Home Sales + Inventory
There has been a great deal of anxiety around the housing market with rates increasing. Given the industry's importance we feel some of the nervousness is warranted, however we also think it is essential to place some of the recent data into perspective.
Over the last several years the combination of migration trends, low inventory, and low rates have led to strong home sales and home price gains.
The National Association of Realtors put it
"The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.""
Rates rising has led to 50% of current home buyers carrying mortgage rates below 4%, making the incentive to move lower as the carrying costs for many homeowners is incredibly low. Combining that with record home equity values, the housing market's foundation is quite strong.
The data today uses some data from Mike DelPrete which looks at the 2022 existing housing sales volume versus history. The finding was that while the year-over-year figures may make nice headlines, the fact is that the estimated 5.15m existing homes sold in 2022 will be right in-line with historical averages.
Another interesting stat is 3.2. Housing inventory is currently at 3.2 months of supply. Historically, 6 months is considered a balanced market. Meaning prices can come down in housing after an incredible run higher, but the inventory imbalance should act as a floor. Much different than historically weak housing periods.
Potential Investment Implications
There are several ways to think about this data. First, what is the overall health of the housing market today? Data supports the view of a slowing market but a very healthy foundation, given low rates, high equity values, favorable demographics, and a very low supply of homes.
Second, Mike notes that the commission pool for real estate-related investments remains ~$100B or +34% higher than in 2019. This suggests that the revenue opportunity remains robust and showcases how real estate companies have natural structural trends at their back despite shorter cyclical events that often occur. Also, remember that real estate can differ by location, so these comments and data are national.
Disclaimer: See the disclaimer page. Not a recommendation to purchase or sell any securities mentioned.