F Forecasts

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

21 March, 2024
US New Home Sales

Today, 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 1.3% MoM to 3.95 million SAAR (v 4.0 million prior). My proxies suggest that EHS will largely exceed expectations.

Summary

  • Local/regional data suggest that Existing Home Sales increased YoY in February
  • Wall Street economists still don’t understand the relationship between pending home sales and existing home sales
  • Lower mortgage rates and a rebound of inventory supported transactions

1. Local/regional data suggest that Existing Home Sales increased YoY in February

According to my calculation, in order for the sales in adjusted value (after seasonal adjustment) to match the consensus (i.e. 3 950k), non-adjusted data would have to decrease by 8.9% YoY from February 2023 to February 2024. However, local figures that I have gathered point to a small rebound. As an example, on a YoY basis, sales increased sharply in several areas such as Houston (+7.0%) or Las Vegas (+10.7%). I discussed with several housing specialists that observed the same results.

–> Even by considering the higher business day count this February compared to last year, I expect housing transactions to increase by more than 9.0% MoM to 4.36M on a seasonal adjusted basis.

–> As most you know, Bloomberg ranked me as the best forecaster for this statistic for almost a decade, so I’m confident about my forecast.

Source: Bloomberg

2. Wall Street economists still don’t understand the relationship between pending home sales and existing home sales

One reason explains why the the consensus could be so wrong (probably missing by >10%). This is simple, most of models are only based on pending home sales. They decreased by 4.9% MoM in January and therefore point to a decline for EHS in February. Yet, a jump in the number of contract signings for existing properties in December (up 5.7% MoM) implies a February advance in resales, given that pending home sales tend to lead existing sales by a month or two. According to NAR, “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. It’s very likely that adverse weather conditions in January further delayed the conversion of pending home sales into existing home sales, which will result in a significant upward surprise compared to consensus expectations. It also means that EHS will retrace in March.

3. Lower mortgage rates and a rebound of inventory supported transactions

In addition to the drop of mortgage rates in December and January, a rebound of existing home inventory likely supported transactions. Lack of choice was cited many times last year as a factor dragging transactions. According to Realtor.com, “there were 14.8% more homes actively for sale on a typical day in February compared to the same time in 2023, marking the fourth consecutive month of annual inventory growth. For the first two months of this year, the inventory of homes actively for sale was at its highest level since 2020.”