Written by Steven Hansen
The headline existing home sales declined relative to last month with the NAR stating “Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak. More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise”.
Analyst Opinion of Existing Home Sales
The NAR believes the drop in home sales is a temporary condition because of the coronavirus. Although it is possible the economy could spring back quickly – the depth of the economic contraction will have significant impacts down the line. We are now in the “pandemic normal”.
It is interesting that home prices remained strong.
We consider this report weaker than last month. Next month, all the month will be in a pandemic lockdown – and home sales should crash.
Please be reminded that all homes SOLD in March likely were under contract in December, January, and February. So the beginning of the contraction of home sales should significantly be impacted beginning with the April data – and worsen significantly with the May and June data regardless if the economy reopens.
Econintersect Analysis
- The unadjusted sales rate of growth decelerated 4.0 % month-over-month, up 3.8 % year-over-year – sales growth rate trend decelerated using the 3-month moving average.
- The unadjusted price rate of growth accelerated by 0.2 % month-over-month, up 6.2 % year-over-year
- The homes for sale unadjusted inventory insignificantly grew this month compared to last month but is down 10.1 % year-over-year
- Sales down 8.5 % month-over-month, up 0.8 % year-over-year (reported last month +7.2 % year-over-year)
- Prices up 8.0 % year-over-year
- The market (from Econoday) expected existing home sales level of 4.500 M to 5.950 M (consensus 5.400 M) with a reported value of 5.27 million
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:
Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak. More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.
Earlier in the year, we watched inventory gradually tick upward but with the current quarantine recommendations in place, fewer sellers are listing homes, which will limit buyer choices. Significantly more listings are needed and more will come on to the market once the economy steadily reopens.
Despite the social distancing restrictions, with many Realtors® conducting virtual open home tours and with mortgage rates on the decline, a number of first-time buyers were still able to purchase housing last month.
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:
While sales have declined, home prices are still solidly strong. The median existing-home price for all housing types in March was $280,600, up 8.0% from March 2019 ($259,700), as prices increased in every region. March’s national price increase marks 97 straight months of year-over-year gains.
According to the NAR;
First-time buyers were responsible for 34% of sales in March, up from both 32% in February and 33% in March 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 13% of homes in March, down from both 17% in February and 18% in March 2019. All-cash sales accounted for 19% of transactions in March, down from both 20% in February and 21% in March 2019.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of March totaled 1.50 million units, up 2.7% from February, but down 10.2% from one year ago (1.67 million). Unsold inventory sits at a 3.4-month supply at the current sales pace, up from three months in February and down from the 3.8-month figure recorded in March 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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