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: Existing Home Sales
The National Association of Realtors (NAR) released its monthly Existing Home Sales report for May earlier this morning. The sales data is of little value because it's telling you what you what the market already knew. This is because it mirrors the Pending Home Sales index, which comes out a month earlier. To that end, Pending Home Sales rose from 94 to 98 from February to April (+4.3%) which is now being reflected in the May Existing Home Sales Data (+4.9%).
The Pending Home Sales index reflects contract signings while the Existing Home Sales report reflects contract closings. There's typically a 1-2 month lag between signings and closings. That being said, there is one extremely valuable piece of data in the Existing Home Sales report that most market participants tend not to focus on, and that's the inventory number. It's the only measure of total housing stock for sale published by any source and it's not a stale number. It's reflecting the number of properties (existing) for sale at the end of the period.
* Overall: Modestly better sequentially. Sales improved but the gain was somewhat hollow as YoY growth remains negative. Inventory was mixed with units up & months supply down – modestly positive for price, on balance, following last months inventory surge.
* Sales: Solid gain sequentially as total sales increase +4.9% MoM (4.89 from 4.66) but….still registering negative YoY growth across all regions in May with total still running -5.0% YoY. Not overly surprising as April Pending Home Sales were better sequentially.
* Inventory: Higher on a Units basis (2.28 MM May vs 2.23MM in April) while months supply ticks down to 5.60 from 5.74 alongside the rise in sales.
* Other: First time homebuyers remained MIA in May, representing just 27% of transaction volume, which was down sequentially from 29% in April and well below "normal" conditions where ~40% of homes are sold to first time buyers. If you view housing as a ladder then inability for 1st time buyers to purchase = lower turnover & lower total transaction activity (although rising supply may help low end volumes)
- Distressed = 11% of May Sales down from 15% in April and 18% in May 2013.
- 1st time buyers = 27% of buyers in May – down from 29% in April and 29% in May of last year
- All-cash sales = 32% of transactions vs. 32% in April
Taking a step back, our main call here is that we're bearish on the outlook for the rate of change in home prices in 2H14 and 1H15.
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.
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
Christian B. Drake