F Forecasts

US Existing Home Sales For October Will Surprise Upward

22 November, 2021
Existing Home Sales

On Monday, the National Association of Realtors (NAR) will release the US Existing Home Sales (EHS) for October. According to the Bloomberg consensus, EHS should decrease by 1.8% MoM to 6.18 million SAAR.

→ My proxies suggest that EHS will beat expectations:

  • Local/state reports show that, on a YoY basis, sales declined at a faster pace in October (non-seasonally adjusted: NSA) mainly due to a negative base effect (one fewer business day compared to October 2020). However, taking into account this bias, sales probably rose again on a MoM basis (seasonally adjusted: SA).
  • An increase in EHS would be coherent with the trend in Pending Home Sales (PHS).
  • Recent announcements from corporates suggest that home-improvement activity remained resilient.

1. Local/state reports suggest that existing home sales probably rose again in October

On a YoY basis, local/state figures imply that national existing home sales (non-seasonally adjusted: NSA) are likely to have declined at a faster pace in October. However, according to my calculation, in order for the sales in adjusted value to match the consensus (i.e. 6 180k), non-adjusted data would have to decrease by 10.7% YoY. Local data that I have gathered show a smaller drop. Bill McBride also found similar results with sales expected to fall by only 8.9% YoY.

2. An increase 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. Recent announcements from corporates suggest that home-improvement activity remained resilient

Two companies specialized in home-improvement published their quarterly results (ending on October 31, 2021) last week, which showed that sales remained robust. I follow closely their statements given that, usually, home-improvement activity is closely correlated with existing home sales:

On Nov. 16, Craig Menear, chairman and CEO of The Home Depot, the world’s largest home improvement retailer, said “The third quarter was another exceptional quarter for The Home Depot as we saw the continuation of outsized demand for home improvement projects, which has led to sales growth of more than $15 billion through the first nine months of the year“.

One day later, Marvin R. Ellison, Lowe’s chairman, president and CEO said “Our momentum continued this quarter, with U.S. sales comps up nearly 34% on a two-year basis, as our Total Home strategy is resonating with the Pro and DIY customer alike”.