October 2020 Headline Existing Home Sales Now Has Five Straight Months Of Sales Gains

Written by Steven Hansen

The headline existing home sales improved relative to last month with the NAR stating “First-time buyers were responsible for 32% of sales in October, up from the 31% in both September 2020 and October 2019″. This was a record month for October home sales.

Econintersect Analysis

• The unadjusted sales rate of growth decelerated 1.1 % month-over-month, up 24.0 % year-over-year – sales growth rate trend significantly accelerated using the 3-month moving average.
• The unadjusted price rate of growth accelerated by 0.8 % month-over-month, up 12.3 % year-over-year
• The homes for sale unadjusted inventory was little changed this month compared to last month and is down 19.8 % year-over-year

NAR reported:

• Sales up 4.3 % month-over-month, up 26.6 % year-over-year (reported last month +20.9 % year-over-year)
• More than 7 in 10 homes sold in October 2020 – 72% – were on the market for less than a month.
• Prices up 15.5 % year-over-year
• The market (from Econoday) expected an existing home sales level of 6.300 M to 6.680 M (consensus 6.470 M) with a reported value of 6.85 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:

Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year.

While coronavirus-induced shutdowns hindered virtually all markets, the housing industry has mounted an impressive rebound.

The surge in sales in recent months has now offset the spring market losses,. With news that a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3% in 2021, I expect the market’s growth to continue into 2021. I forecast existing-home sales to rise by 10% to 6 million in 2021.

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 price for all housing types in October was $313,000, up 15.5% from October 2019 ($271,100), as prices increased in every region. October’s national price increase marks 104 straight months of year-over-year gains.

According to the NAR;

First-time buyers were responsible for 32% of sales in October, up from the 31% in both September 2020 and October 2019. NAR’s 2020 Profile of Home Buyers and Sellers – released last week – revealed that the annual share of first-time buyers was 31%.

Individual investors or second-home buyers, who account for many cash sales, purchased 14% of homes in October, a small increase from the 12% figure recorded in September 2020 and equal to October 2019. All-cash sales accounted for 19% of transactions in October, up from 18% in September but unchanged from October 2019.

Homebuilders’ confidence has soared even though the actual production has not. All measures, such as reduction to lumber tariffs and expansion of vocational training, need to be considered to significantly boost supply and construct new housing.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of September totaled 1.47 million units, down 1.3% from August and down 19.2% from one year ago (1.82 million). Unsold inventory sits at a 2.7-month supply at the current sales pace, down from 3.0 months in August and down from the 4.0-month figure recorded in September 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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