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: November Existing Home Sales
We knew the risk was to the downside for Existing Sales in November (see: They Are Who We Thought They Were) as Purchase Application demand was relatively soft in October, the 1st TRID related impacts would be manifest and some modest downside still existed to full re-convergence with Pending Home Sales. In short, we knew it would be disappointing but the extent of TRID related delays and thus the magnitude of decline remained a wild-card.
With Existing Sales down -10.5% MoM and -3.8% YoY, the decline was, indeed, remarkable. It should also, however, be (to quote Team Janet) “transitory”.
Looking to next month, the negative trinity of factors highlighted above reverses as Purchase Applications saw a notable uptick in Nov/Dec, TRID related delays resolve and recoupling to PHS should all conspire to drive a reversal in this month’s reported weakness.
As Lawrence Yun, NAR chief economist, noted:
"As long as closing timeframes don't rise even further, it's likely more sales will register to this month's total, and November's large dip will be more of an outlier."
We infrequently side with stakeholders with an embedded panglossian bias but, in this instance, we’d agree with that expectation.
What has not been transitory is the tight inventory environment. Units of inventory declined for a 4th straight month, retreating -3.3% MoM and -1.9% YoY to 2.04MM Units (note – inventory is not seasonally adjusted so the YoY change is relevant, particularly around seasonal shifts in activity). On a months-supply basis, the noisy decline in sales more than offset the inventory retreat, driving months-supply +8.1% MoM to 5.14-months – marking the 39th consecutive month below the traditional balanced market level of 6-months. Ongoing supply tightness in the 90% of the market that is EHS remains supportive of stable-to-improving HPI trends in the nearer-term.
As always, we’re more interested in the Pending Home Sales data (Nov release = next Wednesday, 12/30) as a cleaner, more real-time read on the underlying trend in purchase demand in the existing market.
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