Weekly Economic Update-Shifting Directions

Both new and existing home sales reversed direction, again. April wasn’t a good month for either, and the western region of the country put on a particularly lackluster show.
The good news was a substantial boost to inventories since March, but they are still well below where they need to be.
Finally, the grand old sport of house flipping is on the rise, and CoreLogic warns there could be a not so good reason to account for it.

Both new and existing home sales continued their jagged monthly patterns in April. New home sales fell 1.5% after a 4.0% gain in March. Through it all, however, they continue to build a bigger year-over-year margin. It is now 11.6%. The Census Bureau and the Department of Housing and Urban Development said sales were at a seasonally adjusted rate of 662,000 in April compared to a revised 672,000 in March.

The national results were brought down by sales in the West. While there was a strong comeback in the Northeast from its extremely dismal weather-related numbers in March, and sales were flat in the South and Midwest, in the West they nose-dived 7.9%

Because the monthly numbers are seasonally adjusted, annualized, and then revised, sometimes dramatically, over the next two months, reality can get blurry. It seems a good thing that there are now year-to-date numbers for new home sales. The April report shows sales for the first four months of the year up 8.4% compared to the same period in 2017. For further perspective, the YTD gain in the West was 15.1%.

Existing home sales, up for the previous two months, also fell in April. They declined by 2.5%. The seasonally adjusted 5.36 million units sold is 1.4% behind last April’s pace.

The National Association of Realtors (NAR) reported that sales were lackluster everywhere, with the South the sole region to post a gain. Sales declined by 3.3% in the West and are down a fraction from last year.

An influx of listings boosted the inventory 9.8% to 180 million, but the supply--now estimated at 4.0-months--is still below the 1.92 million homes and 4.2-month supply in April 2017. It was the 35th consecutive month of annual declines.

Flip or Flop?

CoreLogic reports that flipping--buying, repairing/renovating, and reselling a house in short order--is back. But they also note it isn’t the semi-safe bet it once was.

Using an in-and-out time limit of 12 months, the company determined that flips accounted for 6.2% of 1st quarter sales, matching the post-crash high set in 2013. But back then distressed sales made up 30% of the total and prices had only just started to recover their losses. Today, the distressed sale share is 3.5% and prices are back to pre-crash levels or higher.

Analyst Bin He says, “Consequently, the acquisition cost in nominal dollars for investors has increased drastically. High acquisition cost, tight inventory, and rising flipping activities together point to possible speculation: investors are betting on continuous home price growth.”

Doesn’t this sound a bit familiar?



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