F — Forecasts

Existing Home Sales For February Will Surprise Downward

18 March, 2022
US rents

On Friday, the National Association of Realtors (NAR) will release the U.S. Existing Home Sales (EHS) for February. According to the Bloomberg consensus, EHS should decrease by 6.2% MoM to 6.10 million SAAR (v 6.50 million prior). My proxies suggest that EHS will surprise downward.

Summary

  • Local/regional data suggest that Existing Home Sales retraced in February
  • Mortgage rates kept rising in February, slowing down demand
  • The lack of inventory also weighed on transactions

1. Local/Regional Data Suggest That Existing Home Sales Retraced In February

According to my calculation, in order for the sales in adjusted value (after seasonal adjustment) to match the consensus (i.e. 6 100k), non-adjusted data would have to decrease by 1.2% YoY from February 2021 to February 2022. Local figures that I have gathered show a larger drop. Bill McBride also found similar results with sales expected to fall by 2.6% YoY. My guess is that it could be even worse especially looking at data from housing providers such as Remax (-4.7% YoY) and Redfin (-6.1% YoY). As a result, I expect housing transactions to decline more than expected on a MoM basis.

2. Mortgage Rates Kept Rising In February, Slowing Down Demand

Mortgage rates have rebounded significantly since the beginning of the year as the Fed started tightening its policy. In this context, several households rushed to buy a house in January as they were concerned that rates will be even higher in a few months. This supportive factor eased in February as suggested by the decrease of mortgage purchase applications in February. It’s very likely that the demand from first-time homebuyers will remain subdued in the coming months as housing affordability declined dramatically.

3. The Lack Of Inventory Also Weighed On Transactions

One of the recent development related to the the housing market has been the collapse in inventory, which pushed prices upward. According to Redfin, “Seasonally adjusted active listings—the count of all homes that were for sale at any time during the month—fell 14% year over year to an all-time low in February. 82 of the 88 largest metros tracked by Redfin posted year-over-year decreases in the number of seasonally adjusted active listings of homes for sale.” This pattern (lack of offer) was sometimes cited as a dampening factor on transactions.