E Economics

Preview: U.S. Existing Home Sales For November Will Surprise Downward Amid Lack Of Supply And Virus Resurgence

21 December, 2020


On Tuesday, the National Association of Realtors (NAR) will release the Existing Home Sales (EHS) for November. According to the Bloomberg consensus, EHS should decrease by 2.2% MoM to 6.70M SAAR.

→ My proxies confirm that EHS will surprise downward*. It will be the first drop since May 2020.

  • Local/state reports show that, on a YoY bais, sales rose at slower pace in November (non-seasonally adjusted: NSA), which should translate into a decline on a MoM basis (seasonally adjusted: SA)
  • A decrease would be coherent with the trend in Pending Home Sales (PHS)
  • Lack of supply and Covid-19 weighed on housing transactions



1. Local/state reports confirm that sales fell for the first time since May 2020

Local/state figures suggest that national existing home sales (non-seasonally adjusted: NSA) are likely to have risen again on a YoY basis in November (fifth straight rise). The pace of increase (NSA) would probably exceed 20% YoY but it should be lower than in October (+24% YoY). Therefore, using my sample of local/state data and a seasonal adjustment factor lower than last year (more favorable), I expect November EHS to disappoint the consensus of -2.2% MoM (seasonally adjusted: SA).


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 November

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 23% year over year to their lowest level on record in November, the 16th-straight month of declines.” My sample of local/state reports also pointed to a YoY fall in inventory that was slightly larger than in October. This pattern was sometimes cited as a dampening factor on sales such as in North East Florida. In the meantime, the spike of coronavirus cases in most affected areas in November, such as Midwest, also affected demand. As an example, existing home sales in Minnnesota only increased by 15.8% YoY in November (below the national average), a pace significantly weaker than in October (+28.9% YoY).


*I perfectly forecasted the level of EHS in July, August, September and October.