Existing home sales at 11-year high
Existing Home Sales (November)
EHS rose 5.6% M/M to 5.81 million, the highest since December 2006 when 6.42 million homes were sold.
Buyers continue to face a market with limited choices. Just 1.67 million homes are available for sale, representing 3.4 months of supply. Under 2 million homes have been available for sale since October 2016.
Price rises reflect the lack of inventory. Buyer competition is pushing up the median price which rose 5.8% Y/Y. Historically, tight inventory in the existing markets incents a higher level of housing starts than we are seeing in the marketplace. Thus, we expect prices to remain firm and are optimistic that markets are not exhibiting bubble characteristics despite the strong price growth.
Tax plan presents some risks. The final tax bill is less of a threat to housing than when initially formulated. However, it does raise costs for the marginal buyer in the most valuable markets in the country and could mitigate price gains in 2018.
Tax plan also presents some opportunities. The reduction in corporate taxes and other real estate developer friendly tax breaks should increase builder profit margins. This will increase the incentive to build lower priced homes where new supply has been lacking due to small profit margins.