Existing home sales decreased 3.2% in July to 5.39 million, missing the consensus forecast that called for a 1% drop in sales by a wide margin. The issue here is that low inventory levels are pushing up prices and crowding out buyers. Despite the tailwind provided by near record low mortgage rates(which fell to 3.44% in July and have declined for five consecutive months), scarcity is taking its toll on buyer traffic.
Demographic forces are responsible for the trends we are witnessing. Older generations are behind the vast majority of the new home purchases, while younger generations(namely millenialls), are central to the weak existing home turnover. Home builders have focused on the high end of the home buyer market, which is more lucrative and accounts for the bulk of industry demand, and this has kept prices more affordable for wealthier demographics. Younger generations are not benefiting as much from low mortgage rates as many individuals are still struggling to pay off existing student loan debts, and putting off borrowing for a house until their credit conditions improve. Older generations, meanwhile, own the lion share of the stocks and bonds, which have appreciated to bubble-like levels thanks to Fed Policy and low interest rates. Thus, while low interest rates have been a key factor in propping up housing prices, the net worth of older generations has more-or-less grown in tandem. The increase in housing prices therefore, has had much less of an impact on demand from older demographics. Sales of homes costing less than $200,000 are trending down, while sales of homes priced above this level continue to increase.
Bottom line – home sales accelerate as the price range( read income bracket) increases.
What does all this mean for seller financing? Opportunity. Our market normally thrives in the lower to mid home price range. So, here we are. As a consequence, a seller who does not need to cash out today needs to find a sound buyer and construct strong terms that are fair for both parties. He can always sell his note down the road if a cash opportunity presents itself.
Source: Quinn Foley, Seeking Alpha, August 25, 2016. See the graphs backing up his data at http://seekingalpha.com.
