E Economics

Existing Home Sales For February Will Decline More Than Expected

21 March, 2021
US Existing Home Sales

On Monday, the National Association of Realtors (NAR) will release the U.S. Existing Home Sales (EHS) for February 2021. According to the Bloomberg consensus, EHS should decrease by 2.9% MoM to 6.50M SAAR.

→ My proxies confirm that EHS will decline more than expected.

  • Local/state reports show that, on a YoY basis, sales rose at weaker pace in February (non-seasonally adjusted: NSA) resulting in a drop on a MoM basis (seasonally adjusted: SA)
  • A sharp decrease would be coherent with the trend in Pending Home Sales (PHS)
  • Adverse weather conditions probably delayed closings in several areas
  • Demand has been affected by a deterioration of housing affordability amid higher mortgage rates and prices
  • Lack of supply kept weighting on housing transactions

1. Local/state reports confirm that sales fell sharply in February

Local/state figures suggest that national existing home sales (non-seasonally adjusted: NSA) are likely to have risen again on a YoY basis in February (8th straight rise). However, the pace of increase (NSA) was significantly lower than in January (+15.8% YoY). Using my sample of local/state data and a seasonal adjustment factor lower than last year (more favorable due to calendar effects), I expect February EHS to decline at a faster pace than anticipated by the consensus (-2.9%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 downward with PHS as suggested by the chart below.

US Existing Home Sales

3. Adverse weather conditions probably delayed closings in several areas

Local/state reports suggest that areas affected by adverse weather conditions saw a significant slowdown or a decline in existing home sales. As a matter of fact, on a YoY basis, sales in Houston (TX) grew by only 1.9% in February (down from +27.5% YoY in January). In the meantime, sales of single-family homes in North Texas were down 8% YoY as “The Texas economy practically shut down for a whole week”. These figures confirm that many home sales that were supposed to close in late February were likely pushed into March.

4. Demand has been affected by a deterioration of housing affordability

Housing affordability has been under pressure since January. On one hand, mortgage rates started rebounding with the 30-year recently hitting the highest level since June 2020.

30-Year-Mortgage-Rate-March 18

On the other hand, prices kept climbing at a fast rate. In its January report, the NAR showed that “The median existing-home price for all housing types in January was $303,900, up 14.1% from January 2020 ($266,300), as prices increased in every region. January’s national price jump marks 107 straight months of year-over-year gains.” More recently, Redfin highlighted that “The national median home-sale price rose 14.4% year over year to $336,200 in February, the largest increase since July 2013.

5. Lack of supply kept weighting on housing transactions

One of the recent development related to the the housing market has been the collapse in inventory, which pushed prices upward. My sample of local/state reports also pointed to a YoY fall in inventory that was larger than in January (-25.7% YoY) with some areas experiencing a decline of more than 50% such as in Minnesota (-51.6% YoY). This pattern was sometimes cited as a dampening factor on sales.