On Thursday, the National Association of Realtors (NAR) will release the Existing Home Sales (EHS) report for September. According to the Bloomberg consensus, EHS should increase by 5.0% MoM to 6.30M SAAR.
→ My proxies confirm that EHS will beat expectations*:
- Buyers continued to benefit from favorable market conditions with mortgage rates recently reaching the lowest level on record
- Local/state reports confirm that sales kept accelerating on a YoY basis (non-seasonally adjusted: NSA) in September, which should translate into a sharp increase on a MoM basis (seasonally adjusted: SA)
- It would be coherent with the recent bounce in Pending Home Sales (PHS)
→ Local/state data and different reports also point to a jump of median home sales price (largest ever on a YoY basis) amid an ongoing decline in inventory.
1. Buyers continued to benefit from favorable market conditions with mortgage rates recently reaching the lowest level on record
Fundamentals kept on improving with a significant decline of mortgage rates. According to Freddie Mac, the average for a 30-year fixed-rate loan reached 2.81% last week, the lowest level ever.
The avg. 30-Yr FRM hits record low at 2.81% https://t.co/Cj2GH9Tofy
Chief Economist @TheSamKhater: “This week, mortgage rates have dropped to the lowest level we have experienced in the 50-year history of the Freddie Mac Primary Mortgage Market Survey.”
— Freddie Mac (@FreddieMac) October 15, 2020
2. Local/state reports confirm that sales kept accelerating on a YoY basis in September
Local/state figures suggest that national existing home sales (non-seasonally adjusted: NSA) are likely to have jumped on a YoY basis in September (third straight rise). The pace of increase (NSA) would probably exceed 20% YoY, partly boosted by higher business day count this September. In addition, there is evidence that many households chose to relocate due to coronavirus pandemic with some of them prefering suburbs due to demand for spacious homes. Using my sample of local/state data and a seasonal adjustment factor higher than last year (less favorable), I expect September EHS to beat the consensus of +5.0% MoM (seasonally adjusted: SA).
3. Another increase in Existing Home Sales would be coherent with the bounce 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.
4. Median home sales price skyrocketed amid an ongoing decline in inventory
Local/state reports also pointed to a sharp drop of single-family home inventory in September. As a result, the deficit of supply relative to demand supported prices for single-family home sales, which would result in the largest increase on record (YoY) for median price. As a reminder, the mix of home sales is skewed toward single family home sales, which mechanicaly boosts the median. This view perfectly fits with the latest Redfin report, “ which showed that the national median home price rose 14.4% year over year to $333,900 in September, the biggest annual increase of any month” since data are recorded (2012). Finally, yesterday, the Beige Book highlighted that “The inventory of homes for sale dropped by double-digit percentages from a year ago in all reporting markets except Boston condos. In Massachusetts and New Hampshire, the inventory of single family homes decreased by over 55 percent. The median sale price rose in all markets, with double-digit increases for single family homes.”