On Friday, the National Association of Realtors (NAR) will release the Existing Home Sales (EHS) for December. According to the Bloomberg consensus, EHS should decrease by 1.9% MoM to 6.56M SAAR.
→ My proxies confirm that EHS will decline for the second straight time but they should fall less than expected.
- Local/state reports show that, on a YoY bais, sales rose at faster pace in December (non-seasonally adjusted: NSA) but it should translate into a decline on a MoM basis (seasonally adjusted: SA) due to calendar effects.
- A decrease would be coherent with the trend in Pending Home Sales (PHS)
- Lack of supply and Covid-19 kept weighting on housing transactions
1. Local/state reports confirm that sales fell for the second straight time in December
Local/state figures suggest that national existing home sales (non-seasonally adjusted: NSA) are likely to have risen again on a YoY basis in December (sixth straight rise). The pace of increase (NSA) would probably exceed 20% YoY. However, using my sample of local/state data and a seasonal adjustment factor higher than last year (less favorable due to calendar effects), I expect December EHS to decline again but at slower pace than anticipated by the consensus (-1.9%e MoM).
2. A decrease in Existing Home Sales would be coherent with the trend in Pending Home Sales
As the National Association of Realtors (NAR) noted, “The Pending Home Sales Index (PHS), a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. Because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing-Home Sales by a month or two.” Therefore, It would be coherent if EHS catch up with PHS as suggested by the chart below.
3. Lack of supply and Covid-19 affected transactions in December
One of the recent development related to the the housing market has been the significant decline in inventory, which pushed prices upward. According to Redfin, “Active listings—the count of all homes that were for sale at any time during the month—fell 22% year over year to their lowest level on record in December, the 17th-straight month of declines.” My sample of local/state reports also pointed to a YoY fall in inventory that was slightly larger than in November (-22% YoY). This pattern was sometimes cited as a dampening factor on sales. In the meantime, the spike of coronavirus cases probably affected demand. As a reminder, new home sales fell for the fourth straight month in November.