US: Existing Home Sales

Tue Dec 22 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Existing Home Sales - Level - SAAR 5.320M 5.100M to 5.500M 4.760M 5.36M 5.320M
Existing Home Sales - M/M Change -10.5% -3.4% -4.1%
Existing Home Sales - Yr/Yr Change -3.8% 3.9%

New closing rules appear to have depressed sales of existing homes in November which fell 10.5 percent to a much lower-than-expected annualized rate of 4.760 million. The year-on-year rate, for the first time since September last year, is suddenly in the negative column, at minus 3.8 percent. The National Association of Realtors, which compiles the report, attributes the weakness to the "Know Before You Owe" initiative which is lengthening closing times and which likely makes November an outlier. The NAR suspects that the sales delays in November are likely to give a boost to December's totals.

Weakness in the month is centered in single-family sales, down 12.1 percent to a 4.150 million rate. Condos rose 1.7 percent to a 610,000 rate.

All regions show declines for total sales with the Northeast, at a modest plus 1.5 percent, the only one to show a year-on-year gain.

Low supply is a problem in the market, at 2.040 million vs 2.110 million in October. Relative to sales, supply is at 5.1 months which, because of November's sales weakness, is up slightly from prior months. For a balanced market, supply is generally pegged at 6.0 months.

Price data are positive, showing some traction with the median up 0.5 percent in the month to $220,300. Year-on-year, the median is up 6.3 percent which is right in line with the trends in this morning's FHFA report.

For volatility, this report is usually tame compared to the new home sales report. Judging strength right now is difficult but a fair judgment is that growth in the housing sector is probably moderate and a plus for the economy. New homes sales are out tomorrow and are expected to show a gain.

Market Consensus Before Announcement
Existing home sales dipped back in October with the year-on-year gain at only 3.9 percent. Weakness was split roughly evenly between single-family homes, down 3.7 percent in the month to a 4.75 million rate, and condos, down 1.6 percent to a 610,000 rate. Lack of supply on the market, at only 4.8 months, has been holding down sales but hasn't yet been giving prices a major boost, up only 5.8 percent year-on-year. For November, the Econoday consensus is calling for a 5.32 million annualized rate, down what would be 0.8 percent in the month. The consensus estimate, based on weakness in pending home sales data, does not point to a rising sales trend nor to greater home-price appreciation.

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.