Are home sales transactions REALLY declining?

The short answer is: Yes.  Lost in the headlines around large year-over-year growth in both number of transactions and median sales prices is the fact that existing-home sales transactions have declined month-over-month for 3 straight months. This trend seems likely to continue when May data is released later in June as April pending home sales transactions (which tend to predict May closings) was down over 4% compared to March.

Here's Why That Matters: Fannie Mae's Case for Zero Growth in Housing Market Over Next 18 Months

At the beginning of the year, popular sentiment held that the housing market boom from the second half of 2020 would continue uninterrupted throughout 2021.  Zillow predicted the largest growth in existing home sales since the 80's, projecting a 21.9% growth year-over-year in 2021.

In order for this happen, Zillow predicted that existing home sales transactions would peak at a seasonally adjusted rate of 7.01 million in April '21.

existing-home-sales-forecast-bb2bb6-zillowSource: Zillow  https://www.zillow.com/research/november-2021-sales-forecast-28499/ 

Actual April existing home sales data according to NAR came in at a seasonally adjusted annual rate of 5.85 million, 16% less than what Zillow predicted.  This is a big deal because (as you can see in chart above) the comparables for the second half of the year of 2020 are much higher.  In reality, it now looks like the market (from a sales volume standpoint based on chart below)  peaked in October '20, stayed roughly flat through Jan '21, and then has been in decline since.

NAR data past 3 years Ychart june 9 2021 take 2Source: NAR & ycharts.com https://ycharts.com/indicators/us_existing_home_sales 

All this is to stay, the case for the continuation of an uninterrupted housing boom throughout 2021 seems less and less likely. 

On the other hand, Fannie Mae's predictions thus far have been much more accurate as their Q1 '21 prediction of 6.27MM existing home sales (seasonally adjusted annual rate) was only 0.6% off of actual number 6.30MM existing homes sold in Q1 '21.

As such, it is worth looking at their updated May 2021 predictions for 2nd half of 2021 and full year 2022:

  • 2nd Half of 2021
    • Existing Home Sales (Trxn's) -10% decline year-over-year
    • Median Existing Home Price:  +10% growth year-over-year
  • Fully Year 2022
    • Existing Home Sales (Trxn's) -5% decline year-over-year
    • Median Existing Home Price:  +4% growth year-over-year

Fannie Mae May 2021 PredictionsSource:  Fannie Mae https://www.fanniemae.com/media/39411/display 

Fannie is basically predicting zero growth for the next 18 months as price increases will be washed out by lower transaction volume numbers.

 

Tracking Fannie Mae's Prediction of Zero Growth in Housing Market vs. Current Trends

Fannie Mae's main reason for revising their forecast downward this Spring was due to:

  1.  Mortgage Rates:  30 year mortgage rate is more quickly approaching 3.0% (and are now projected to hit 3.3% by beginning of 2022)
  2. Inventory Shortage:  Housing Shortage remains large with supply of home available for sale down 20% year-over-year in April 2021.

Recent data does not indicate that either of these trends have started to reverse.

The 30 year Freddie Mac mortgage rate has not dipped below 2.90% since February (the rate had been below this number for most of the months when sales volume was rising month-over-month).

Mortgage Rates Jun 9 2021Source: Freddie Mac http://www.freddiemac.com/pmms/ 

Due to housing shortage in April, 47% of respondents to The Fannie Mae Home Purchasing Sentiment Index said it was a good time to buy a home, the lowest in the survey's history.  The data came in even lower on June 7, with only 35% of respondents saying it was a good time to buy a home, another new record low.  This reading is adding further concerns that housing shortage is not showing signs of improvement.

Fannie Mae housing Survey June 2021Source: Fannie Mae https://www.fanniemae.com/research-and-insights/surveys/national-housing-survey 

There are also two other pieces of government legislation to keep an eye on that could really impact the market in the short-term:

  1.  In April, Congress introduced a bill that would provide a $15,000 tax credit for first-time homebuyers targeting low- and middle-income earners.  If this bill were to pass, it could have major impacts on pricing, particularly for more affordable homes priced below $500K.
  2. The moratorium on single-family and real estate owned evictions is scheduled to expire on June 30, 2021.  It ended up being extended when it was  last scheduled to expire in March.  But if it is not extended again, it could add a temporary injection to the housing supply.

 

How Should Teams & Agents Prepare for a Potential Zero Growth Market Scenario?

Don't take this case the wrong way.  This is not a prophecy of doom and gloom.  This is not a prediction that the housing market is on the verge of an imminent crash.

All I am saying is that this zero growth market scenario is increasing in likelihood.  As such, it is imperative for many teams and agents to start rethinking their strategy to prepare for such a market.  With a flood of new agents (due to the housing boom), the next 18 months are going to be significantly more challenging than the past 9 months.  There will still be plenty of growth opportunities.  Teams and agents will need to seek out opportunities other competitors are missing.

As such, the top-performing teams and agents that we work with are already starting to double down in investing time and resources in the following areas, and I would encourage you to do the same:

  1. Focus on Building Your Seller/Buyer Pipeline NOW: 
  2. Develop a Predictable Process for Closing New Business by Leveraging Existing Database: Geoff Adams, consistently performing in the Top 1% of all Realtors in Arizona, recently sat down with us to discuss the "Top 5 Money Makers in Your Database: 5 Actions to Take With Every Lead in Your Database to Grow Your Future Business".
  3.   Stay Up-to-Date on Best Practices From Top Performers in a Rapidly Changing Market:  You can get a behind the scenes look at some of the new lead generation and conversion tools and processes some of the top performers in real estate are leveraging to keep a leg up on their competition by joining us for our "See What's New at CINC" webinar on Thursday, June 17 at 2pm ET.

 

Learn How Elite Agents Turn Online Leads Into Closings

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Benchmark Your Cost Per Lead Performance in Your Market Area

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This Blog Post was Written by Richard Kaiser

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