US Existing Home Sales For March Will Decline More Than Expected

On Thursday, the National Association of Realtors (NAR) will release the US Existing Home Sales (EHS) for March. According to the Bloomberg consensus, EHS should decrease by 1.1% MoM to 6.15 million SAAR. It would be the lowest level since August 2020.

→ EHS will decline more than expected because of technical and fundamental factors:

  • Buyers signed contracts in February (and to a lesser extent in January) for most March sales. Therefore, March EHS were still affected by adverse weather conditions.
  • A larger fall than forecasted would be coherent with the trend in Pending Home Sales (PHS).
  • Local/state reports show that, on a YoY basis, sales rose at a faster pace in March (non-seasonally adjusted: NSA) due to calendar and positive base effects. Ajusting for these biases, it resulted in a drop on a MoM basis (seasonally adjusted: SA).
  • Demand was dampened by a deterioration of housing affordability amid higher mortgage rates and prices.
  • Lack of supply kept weighting on housing transactions.

1. Data construction implies that March figures were still affected by adverse weather conditions

Most of economists never looked at the construction of EHS data which explains a large part of miscalculation. According to the Census Bureau, “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.” In other words, most buyers placed their offers in February (and to a lesser extent in January), when weather conditions were unfavorable.

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 downward with PHS. However, note that EHS are unlikely to drop as much as PHS (down 10.6% MoM in February).

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Disclaimer: Mr. Christophe Barraud could not be held responsible for the investment decisions or possible capital losses of users. Mr. Christophe Barraud endeavors to provide the most accurate ...

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