F — Forecasts

Preview: U.S. Existing Home Sales for February Will Exceed Expectations

20 March, 2023
US New Home Sales

On Tuesday, the National Association of Realtors (NAR) will release the U.S. Existing Home Sales (EHS) for February. My proxies suggest EHS will rebound more than expected, reflecting lower mortgage rates at the beginning of the year and rising inventory.

Summary

  • Local/regional data suggest that Existing Home Sales rebounded sharply in February
  • A significant increase of EHS would be coherent with the trend of Pending Home Sales (PHS)

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

According to my calculation, in order for the sales in adjusted value to match the consensus of 4.20M, non-adjusted data would have to decrease by 29.0% YoY from February 2022 to February 2023. However, local figures that I have gathered show a smaller drop. Bill McBride found similar results with sales expected to fall by 23.7% YoY. Redfin also flagged a smaller decline (-22.5%). As a result, I expect housing transactions to increase by more than 10% MoM (well above Bloomberg consensus of +5.0% MoM).

2. A Significant Increase of EHS Would Be Coherent Would Be Coherent With The Trend of Pending Home Sales (PHS)

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 that saw an uptick in December (+1.1% MoM) and a bounce in January (+8.1% MoM). Keep in mind that EHS are clearly a lagging indicator of the cycle. As a result, February figures will reflect market conditions at the begginning of the year. The latter were favourable with lower mortgage rates and rising inventory (offering more choice for buyers).

*Note: Census also highlighted “the majority of transactions are reported when the sales contract is closed. Most transactions usually involve a mortgage which takes 30-60 days to close. Therefore an existing home sale (closing) most likely involves a sales contract that was signed a month or two prior.”