Since the housing recovery started taking hold in 2012, we’ve been searching for signs that the recovery is complete. While home prices and delinquencies have both returned to their pre-crisis levels, home sales show signs of lagging behind.
Figure 1 shows the number of home sales (both resales and new construction) from 2000 to 2018[1]. If you were to only look at the number of homes sold, it might look like single-family homes sales have nearly recovered from the financial crisis, because the level of home sales in 2017 was the same as it was in 2002 before the start of the housing boom.
But looking only at sales ignores the growth in the number of households, which were up by roughly 15 million since the early 2000s[2]. And more households would imply that a higher level of home sales would be needed to meet the higher demand.
To factor the growth in households, we can look at the single-family turnover rate (Figure 2), which is the total number of single-family home sales divided by the number of households.
Before the housing boom and crash, the turnover rate was 5.8 percent. As home sales heated up the turnover rate increased, followed by a period of very low turnover during the recession. While the turnover rate has recovered a bit in the housing recovery, it seems to have flattened out at 5.1 percent for 2016 through 2018. It looks like a low turnover rate might just be the new normal for the housing market.
What does a low turnover rate imply for the new normal in home sales? it means compared with the early 2000s, the new normal is about one million fewer home sales each year. While there are many reasons why home sales might be lagging, one of them is the historically low level of housing supply for single-family homes.
[1] The 2018 homes sales are derived from the most recent projections for single-family home sales from Fannie Mae, Freddie Mac, and the Mortgage Bankers Association.
[2] Source: Bureau of the Census, Housing Vacancy Survey.
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