US: Existing Home Sales

Mon Feb 23 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Existing Home Sales - Level - SAAR 4.950M 4.850M to 5.200M 4.82M 5.040M 5.07M
Existing Home Sales - M/M Change -4.9% 2.4% 2.4%
Existing Home Sales - Yr/Yr Change 3.2%

Despite a strong jobs market and low mortgage rates, demand for housing, whether for existing or new homes, remains flat. Sales of existing homes in January fell a very steep 4.9 percent to an annual rate of 4.82 million which is the lowest rate since April last year. All regions show single-digit declines with the West the deepest, at minus 7.1 percent. Declines hit both single-family homes, at minus 5.1 percent, and condos, at minus 3.5 percent.

Price concessions didn't help the month's sales with the median down 4.1 percent to $199,600. This is the first reading below $200,000 since March last year. The drop in sales made for a sizable rise in inventory relative to sales, to 4.7 months vs December's 4.4 months.

The lack of sales punch has the National Association of Realtors wondering. The NAR says it's "puzzled" that homeowners are now staying in their homes 10 years on average vs the long term average of 7 years, saying that homeowners may be happy with their mortgage rates and are perhaps doubtful that housing will rebound.

One technical factor to note is that seasonal adjustments have an outsized effect on housing data during the slow months of winter. But this report nevertheless shows a slow start to the year. Today's report starts out a big week for housing data including Case-Shiller price data tomorrow, new home sales on Wednesday and pending sales of existing homes on Friday.

Market Consensus Before Announcement
Existing home sales popped up in December as expected, up 2.4 percent to an annual sales rate of 5.04 million versus a revised 6.3 percent decline in November to 4.92 million. December's gain was led by single-family homes which rose 3.5 percent to a 4.47 million rate. Condos declined 5.0 percent in the month to a 570,000 rate. The gain in sales drew down available homes on the market to 1.85 million from 2.08 million, in turn sharply lowering supply on the market to 4.4 months from 5.1 months. Lower supply points to sales troubles in next month's report. On net, this was a solid report though seasonal factors do play an unusually large role in housing readings during the winter.

Existing home sales tally the number of previously constructed homes, condominiums and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends. (National Association of Realtors)

This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer.

Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.