Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.
Today's Focus: July Existing Home Sales
For a second month in a row consensus was expecting sequential strength in Existing Home Sales – an increasingly serial (mis)expectation that remains difficult to understand given the trend in signed contract activity was signaling the opposite and the consistent empirical proclivity for EHS to reconverge with the trend in PHS following any short-term dislocation between the two series.
EHS fell -0.7% M/M, marking a 4th month of sequential decline, while falling -1.5% Y/Y and registering a 5th consecutive month of negative year-over-year growth. Again, with PHS and Purchase Application volume signaling as much, the broader inventory dynamic unchanged and housing sentiment softening on the margin, the July weakness should carry little surprise value.
The biggest notable in the July release, however, was actually a (marginal) positive.
Year-over-year unit inventory growth improved to +0% year-over-year, marking a 4th month of 2nd derivative improvement and ending a remarkable 37 month stretch of negative year-over-year inventory growth (recall, while sales data is seasonally adjusted the inventory data is not so the y/y change offers a cleaner read on the underlying trend).
Moreover, if we restrict the sample to detached single-family homes (i.e. ex-condo’s & coop’s), unit inventory growth accelerated to +1.2% Y/Y.
This, of course, matters because all-time tight supply conditions have acted as the primary gating factor on volume growth. And while neither the absolute level of unit inventory nor the current months-supply level will serve to support a material change in volume growth nearer-term, from a better/worse perspective, the trending slope of the data has been conspicuously better.
Conclusion: Absent an unexpected jump or outsized revision in next week’s July PHS data, expect a similar flavor of underwhelming sales growth again in August. On the margin, however, housing’s biggest albatross is showing signs of lift with the peak in acute supply conditions now seemingly rearview.
About Existing Home Sales:
The National Association of Realtors’ Existing Home Sales index measures the number of closed resales of homes, townhomes, condominiums, and co-ops. Existing home sales do not take into account the sale of newly constructed homes. Existing home sales account for 85-95% of all home sales (new home sales account for the remainder). Therefore, increases in existing home sales tend to signify increasing consumer confidence in the market. Additionally, Existing Home Sales is a lagging series, as it measures the closing of homes that were pending home sales between 1 and 2 months earlier.
Frequency:
The NAR’s Existing Home Sales index is published between the 20th and the 22nd of each month. The index covers data from the prior month.
Joshua Steiner, CFA
203-562-6500
jsteiner@hedgeye.com
Christian B. Drake
203-562-6500
cdrake@hedgeye.com
