F Forecasts

US Existing Home Sales For December Will Miss Expectations

19 January, 2022
House Prices

On Thursday, the National Association of Realtors (NAR) will release the US Existing Home Sales (EHS) for December. According to the Bloomberg consensus, EHS should decrease by 0.5% MoM to 6.43 million SAAR.

→ My proxies suggest that EHS will surprise downward:

  • Local/state reports show that, on a YoY basis, sales declined after increasing by 2.0% in November (non-seasonally adjusted: NSA). Taking into account seasonal adjustment factors, sales should fall more than expected on a MoM basis.
  • Demand was affected by a deterioration of housing affordability amid elevated prices and higher mortgage rates.
  • Lack of supply kept weighting on housing transactions.

1. Local/state reports suggest that existing home sales are likely to fall more than expected

On a YoY basis, local/state figures imply that national existing home sales (non-seasonally adjusted: NSA) are likely to have declined in December, after rebounding in November (+2.0% YoY). According to my calculation, in order for the sales in adjusted value to match the consensus (i.e. 6 430k), non-adjusted data would have to decrease by 0.8% YoY. Local data that I have gathered show a larger drop. Bill McBride also found similar results with sales expected to fall by 5.5% YoY.

2. Demand was affected by a deterioration of housing affordability amid elevated prices and higher mortgage rates

Housing prices rose significantly in 2021 and squeezed a lot of first-time buyers out of the market. The latter are forced to rent rather than buy a home. Last month, the NAR highlighted that “The median existing-home price for all housing types in November was $353,900, up 13.9% from November 2020 ($310,800), as prices increased in each region, with the highest pace of appreciation in the South region. This marks 117 straight months of year-over-year increases, the longest-running streak on record.“ In the meantime, mortgage rates have rebounded since mid-September. As a matter of fact, the average rate on 30-year fixed mortgage hit 3.7% Tuesday, according to Mortgage News Daily. CNBC noted “that is the highest since early April 2020 and now 83 basis points higher than the same time one year ago.

3. Lack of supply kept weighting on housing transactions

One of the recent development related to the the housing market has been the collapse in inventory, which pushed prices upward. My sample of local/state reports point to a YoY fall in inventory that was a bit larger than in November (-13.3% YoY). In the meantime, Redfin also reported that “Housing supply fell to a new low in December“. This pattern (lack of offer) was sometimes cited as a dampening factor on transactions.