Investors, second-home buyers, vacation-home buyers do some heavy lifting.
By Wolf Richter for WOLF STREET.
Despite inventories of homes listed for sale that have been rising for three months, sales of existing homes – single-family houses, condos, and co-ops – declined for the fourth month in a row, by 0.9% in May, from April, to a seasonally adjusted annual rate of 5.80 million homes, to the lowest sales rate since June 2020, according to the National Association of Realtors today. Compared to May 2019, sales were up 10.9%. Homes sales have now mostly unwound the extravagant spike that started last summer (historic data via YCharts):
Investors play a big role.
In May, 23% of the sales were all-cash, often an indication of institutional investors buying, down from 25% in April. In May 2020, all-cash deals were at 17% of total sales, according to the NAR. Heavy buying by investors has caught the attention of Dallas Fed President Robert Kaplan who pointed at it, and the distortions it causes, as a reason to taper the Fed’s purchases of MBS “sooner rather than later.”
Individual investors and second-home buyers, who also account for a portion of the cash-buyers, purchased 17% of the homes in May, up from 14% in May last year.
Vacation home sales have jumped. The NAR, in a report looking at 323 counties that are identified as vacation home hotspots, found that sales of vacation homes over the first four months of 2021 jumped by 55% compared to the annual rate in 2019, to a seasonally adjusted annual rate of 412,500 sales. Work-from-home had likely something to do with it – if you can work from anywhere, why not work in a beautiful vacation spot?
Mortgage applications may be an indication that regular buyers are getting second thoughts about the frenzy: Mortgage applications to purchase a home – not to refinance – have dropped back into the 2019 range, and in the latest week were down 6% from the same week last year and down 1% from the same week in 2019, according to data from the Mortgage Bankers Association, with the entire big boom last year having now been worked off (data via Investing.com):
Inventory of homes listed for sale rose 7% in May to 1.23 million homes, the third month in a row of increases. While still very low, inventories are at the highest level since last November. And supply rose to 2.5 months at the current rate of sales, the highest since October last year (data via YCharts):
New listings are slowly coming out of the woodwork. In May, new listings rose 5.8% from April, and 5.4% from May last year, to 403,000 homes, according to the realtor.com residential listings database, but are still about 140,000 new listings below the pre-Pandemic Mays (the months of May are connected by a green line).
Home buyers that haven’t put their old home on the market after buying a new one because they plan to ride up the massive price gains with both homes for as long as they can, they’re expected to make a large-scale showing in the fall. Keeping a vacant home around has hefty carrying costs, and it only works with the types of crazy price increases we’re seen in many markets recently. The equation falls apart when prices stabilize.
Numerous surveys of homeowners have pointed at pent-up supply of vacant homes waiting in the wings, including a survey of homeowners by the National Association of Realtors and Harris Poll, which showed that 10% of them plan to sell their home over the next 12 months, substantially higher than in a typical year, and over half of them are planning to list their home by the fall.
Crazy price spike continues.
The median price for existing homes spiked by 23.6% from May 2020, and by 25.9% from May 2019, to $350,300. Note how the Pandemic upended the well-established pattern of seasonality (data via YCharts):
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