Home Sales Near 2-Year High Despite Supply Woes: 5 Picks

U.S. existing-home sales wrapped up 2019 on a solid note. Sales of previously-owned homes attained the highest level in December since March 2018, despite running out of adequate level of inventory. According to the National Association of Realtors (“NAR”), existing-home sales grew 3.6% in December versus a marginal fall registered in November. Notably, the metric surpassed market expectations by more than 2%.

Undeniably, lower mortgage rates, solid job market and resilient consumer confidence helped the housing market to regain its footing after being hit hard in 2018. Notably, shares of a few industry players like Hovnanian Enterprises, Inc. (NYSE:HOV) , Taylor Morrison Home Corporation (NYSE:TMHC) and Beazer Homes USA, Inc. (BZH) grew 2.5%, 1.8% and 1.3% on Jan 22, 2020, post the release of existing-home sales data.

However, record low inventory level continues to be a significant headwind that is affecting prospective buyers, especially first-timers. “Home sellers are positioned well, but prospective buyers aren’t as fortunate. Low inventory remains a problem, with first-time buyers affected the most.” NAR’s chief economist, Lawrence Yun, said.

Solid December Readings

On Wednesday, the NAR stated that existing home sales — which account for more than 90% of total U.S. home sales — increased 3.6% in December to a seasonally adjusted annual rate of 5.54 million units from November’s 5.35 million. Also, sales were up 10.8% from 5 million units reported a year ago.

Regionally, Northeast sales — which account for the majority of existing home sales — grew 5.7% to 740,000 units from a month ago and 8.8% from the prior-year period. Sales in the West and South also rose 4.6% and 5.4% from a month ago, respectively. On a year-over-year basis, the regions reported growth of 10.7% and 12.4%, respectively. Although sales from the Midwest declined 1.5% from November 2019, the same improved 9.2% from the December 2018 level.

Median sales price in the month rose 7.8% from the comparable year-ago period to $274,500, marking the 94nd straight month of year-over-year increase. Median home prices grew in all regions, with the strongest price gain recorded in the Midwest.

20-Year Low Inventory Restrains Growth

Total housing inventory at the end of December was 1.4 million units, down 14.6% from November readings and 8.5% from the prior-year period. Moreover, it will take just three months to deplete the current supply of homes, down from 3.7 months noted in both November 2019 and December 2018.

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Discouragingly, unsold inventory has dropped for seven consecutive months, taking a toll on housing market growth. Though the overall housing market is exceeding market expectations on major data points — given below 4% mortgage rates (from its peak of 4.94% in November 2018), solid job market and three interest rate cuts in 2019 — supply-side headwinds are still suppressing the growth trajectory.

In December, first-time buyers were responsible for 31% of sales, down from 32% registered in November and December 2018.

Nonetheless, NAR’s president Vince Malta expects 2020 to be a solid year for housing. The U.S. housing market, accounting for nearly 3.1% of the economy, plays an important role in the evaluation of overall economic growth. Per a report from the National Association of Home Builders, the housing share of GDP rose for the first time in six quarters to 14.6% in third-quarter 2019. The Zacks Original post