Written by Steven Hansen
The headline existing home sales improved relative to last month with the NAR stating “February’s home sales were encouraging but not reflective of the current turmoil in the stock market or the significant hit the economy is expected to take because of the coronavirus and corresponding social quarantines”.
Analyst Opinion of Existing Home Sales
The rolling averages for existing home sales have been improving since early 2019. The rolling averages are now well into expansion. We consider this report weaker than last month, however, it shows very strong growth. Housing inventory (homes for sale) remains near 21st-century lows. This analyst believes the coronavirus will kill home sales. Please be reminded that all homes SOLD in February likely were under contract in November, December, and January. So the beginning of the contraction of home sales should marginally begin in March data – and be significantly impacted beginning with the April data.
Econintersect Analysis
- The unadjusted sales rate of growth decelerated 3.5 % month-over-month, up 7.7 % year-over-year – sales growth rate trend accelerated using the 3-month moving average.
- The unadjusted price rate of growth accelerated by 0.8 % month-over-month, up 6.0 % year-over-year
- The homes for sale unadjusted inventory insignificantly grew this month compared to last month but is down 9.8 % year-over-year
- Sales up 6.5 % month-over-month, up 7.2 % year-over-year (reported last month 9.6 % year-over-year)
- Prices up 8.0 % year-over-year
- The market (from Econoday) expected existing home sales level of 5.390 M to 5.550 M (consensus 5.500 M) with a reported value of 5.77
The graph below presents the unadjusted home sales volumes comparing growth in every month.
Here are the headline words from Lawrence Yun, NAR’s chief economist:
February’s sales of over 5 million homes were the strongest since February 2007. I would attribute that to the incredibly low mortgage rates and the steady release of a sizable pent-up housing demand that was built over recent years.
February’s home sales were encouraging but not reflective of the current turmoil in the stock market or the significant hit the economy is expected to take because of the coronavirus and corresponding social quarantines. These figures show that housing was on a positive trajectory, but the coronavirus has undoubtedly slowed buyer traffic and it is difficult to predict what short-term effects the pandemic will have on future sales.
For the past couple of months, we have seen the number of buyers grow as more people enter the market. Once the social-distancing and quarantine measures are relaxed, we should see this temporary pause evaporate, and will have potential buyers return with the same enthusiasm.
To remove the seasonality of home prices, here is a year-over-year graph that demonstrates a general improving home price rate of growth.
Econintersect does a more complete analysis of home prices with the Case-Shiller analysis.
The home price situation according to the NAR:
The median existing-home price2 for all housing types in February was $270,100, up 8.0% from February 2019 ($250,100), as prices rose in every region. February’s price increase marks 96 straight months of year-over-year gains.
According to the NAR;
First-time buyers were responsible for 32% of sales in February, equal to the percentages seen in both January 2020 and in February 2019. NAR’s 2019 Profile of Home Buyers and Sellers – released in late 2019 – revealed that the annual share of first-time buyers was 33%.
Individual investors or second-home buyers, who account for many cash sales, purchased 17% of homes in February, equal to January and up slightly from 16% in February 2019. All-cash sales accounted for 20% of transactions in February, down from both 21% in January and from 23% in February 2019.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of February totaled 1.47 million units, up 5.0% from January, but down 9.8% from one year ago (1.63 million). Unsold inventory sits at a 3.1-month supply at the current sales pace, equal to the supply recorded in January and down from the 3.6-month figure recorded in February 2019.
Caveats on Use of NAR Existing Home Sales Data
The National Association of Realtors (NAR) is a trade organization. Their analysis tends to understate the bad and overstate the good. However, the raw (and unadjusted) data is released which allows a completely unbiased analysis. Econintersect analyzes using the raw data. Also, note the National Association of Realtors (NAR) new methodology has a moderate back revision to the data – so it is best to look at trends, and not get too excited about each month’s release.
Econintersect determines the month-over-month change by subtracting the current month’s year-over-year change from the previous month’s year-over-year change. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).
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