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What Should Be Happening In Housing

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.

The word “should” appears in way too much economic commentary. That’s true of the whole broad range of subjects that are related to the economy, but where “should” really comes up is in relation to the labor market. It’s really no mystery why given that the unemployment rate is at an extreme the rest of the data is nowhere near.

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Therefore, if you believe the unemployment rate is meaningful then there is a whole bunch of “should” all across the economic spectrum. Wages aren’t accelerating, but they should.

Related to the labor market is spending on big ticket items. The auto market has similarly struggled and increasingly in production terms as inventory remains high going into now a fourth year. The change in the sales environment closely (perfectly) corresponds with the change in the labor market the doesn’t associate with the unemployment rate.

The same is also true in housing. Resales, the sales of existing homes, continue like autos in limbo where if the unemployment rate had it right there would be no such limitations – even considering marginally higher mortgage rates (the average 30-year commitment rate was in May 2018 4.59% according to Freddie Mac, compared to an average 3.99% in 2017). This doesn’t make much sense, thus:

Lawrence Yun, NAR chief economist, says a solid economy and job market should be generating a much stronger sales pace than what has been seen so far this year. [emphasis added]

Maybe the economy isn’t solid and the job market much softer than otherwise described? Rather than believe the data and the simple economics of the situation, everyone holds tightly to the narrative because Economics is not a scientific pursuit. It is an ideology which cannot be broken even by the most obvious disassociations.

Existing home sales in May 2018 were down slightly from April (seasonally adjusted). This is not a recent development, however, as the resale market has struggled for over a year now. The only time when the NAR’s data began to look more like the falling unemployment rate was in the immediate aftermath of last year’s hurricanes. If it takes Harvey and Irma to contribute something in the direction of a boom, there isn’t likely to be one.

Year-over-year, resales have contracted in six out of the last nine months, with two of the positive comparisons falling in November and December 2017 (the lag to interruptions in August and September).

The issue has manifested as a dearth of sellers rather than buyers; or, more specifically, a dearth of both (see below) where over the last three years the imbalance had trended more to the supply side than demand. Reluctance to sell one’s home is every bit economic insecurity as reluctance to buy. Homes though they are commodities are not disposable ones.

The NAR, however, is trying make this disparity out as an imbalance exclusively inside the real estate market.

“Realtors® in many parts of the country say their seller clients are dealing with a seesaw of emotions when deciding to put their home on the market,” said NAR President Elizabeth Mendenhall, a sixth-generation Realtor® from Columbia, Missouri and CEO of RE/MAX Boone Realty. “While they’re thrilled that they will immediately find multiple buyers interested in their listing, many fear they’ll have extreme difficulty finding another home to buy. Some have even decided to hold off until inventory conditions start improving, which is actually only exacerbating supply shortages.”

Huh? This makes no sense whatsoever. People are keeping their homes off the market until fewer people keep their homes off the market?

Being tied to the unemployment rate will do that to you. If you can’t use the obvious economic explanation refuting the unemployment rate, then should you go in a different direction than logic and common sense?

What’s keeping sellers on the sidelines is incredibly simple:

Any economy is a mix of healthy and unhealthy. The demand for housing, new and existing, is derived from the part that is healthy. Even in the worst of recessions the vast majority of the population remains unaffected by it. The issue is the size of the margins, meaning the proportion of the population left on the wrong side of that divide. A healthy economy has far fewer.


A recession in these terms is where there are far too many who all at once find themselves in that state. The weak economy we still have today is still far too many on the wrong side, only that they’ve been there for a long time and now many more are starting to worry in aftermath of the “unexpected” 2015-16 downturn they might fall into the same category.

It’s not that current resale levels are all that high to begin with, either. They are down significantly and not just when compared to the bubble peak now almost thirteen years ago. The level of existing home sales in May 2018 was about the same (SAAR) as in December 1998. The population hasn’t stood still over those two decades, meaning that the proportion of home buyers isn’t as robust as it is portrayed.

We see this very clearly in the related compression of home construction, either single or multi-family.

The real estate market uniformly telling Economists they should stop using the unemployment rate.

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. I may receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

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