US Existing Home Sales: Two weeks unmake the month

Sales in the largest sector of the housing market fell more than expected in March sliding 8.5% to 5.27 million annualized units, according to the National Association of Realtors (NAR) on Tuesday.

 Even though the figures are based on closing for contracts largely signed in January and February before many state government closed businesses because of the Coronavirus it was the largest monthly decline in four years. Typically there is a one or two month delay between the contract and the actual transfer of the property at the closing while the buyer secures mortgage financing.

Existing home sales

Mortgage rates

February had seen a 6.3% spike in sales to 5.77 million, the best level in 13 years as customers were emboldened by the buoyant job market to take advantage of falling interest rates in what for most is their largest lifetime purchase.  

”Mortgage rates will be at super low conditions this year,” noted NAR chief economist Lawrence Yun.

Interest rates on a conventional 30-year fixed-rate mortgage averaged 3.45% nationwide in March, down from 3.47% in February and 3.62% in January. In 2019 the average was 3.94%.

Sales were up 0.8% from a year earlier (5.23 million in March 2019), rising for the ninth straight month. January’s is normally the slowest month of the year in the real estate market and the sales increase to February is historically the largest each year.

While the March sales numbers were within the range of the past four years Yun suggested that sales could fall 30% or 40% in the months ahead as the widespread economic shutdown of the commercial and retail sectors has thrown more than 22 million people out of work.

If accurate this would, at least temporarily bring sales back to the lowest point of the post-recession housing crash in July 2010 at 3.83 million units. .

US GDP headed to contraction

The housing market could be another sign that the jobs losses incurred by the business closures are affecting consumers’ long-term outlook.  

March’s economic closures even though limited to the last two weeks of the month are expected to have been severe enough to push the entire quarter into contraction despite the estimated 2.7% rate in late March in the Atlanta Fed’s GDPNow model. 

The first quarter GDP rate is predicted to be -4% annualized in the Reuters survey of economists and was at -0.3% from the Atlanta Fed on April 16, with an update due on the April 24.  The US economy expanded at a 2.1% rate in the final three months of 2019.

This would be the first negative quarter since the start of 2015 and only the third negative since the end of the financial crisis recession in June 2009. 

The Bureau of Economic Analysis will issue its preliminary estimate for Q1 GDP on Wednesday April 29, followed by two revisions at one month intervals.

Regional housing sales

Sales fell across the country in March led by the West down 13.6%, to 9.1% in the South, 7.1% in the Northeast and 3.1% in the South.

Price growth remained strong rising 8% on the year supported by a shortage of inventory, off 10.2%  last month from a year earlier. The median home price in March was $280,600.

“There was a housing shortage going into the virus,” said Yun, “Builders have been underproducing for ten years.”

Some gauges of availability showed a steep drop in the number of new listing in March which probably reflects the social distancing measures prevalent in much of the country. The NAR reported that 93% of sellers had changed their behavior to accommodate new social distancing restrictions most often offering virtual tours of properties instead of personal visits. 

Conclusion

While the home resale market is not a major contributor to GDP it is an indicator of the health and confidence of the consumer sector which is the dominant force in US economic activity.  If the decline in home sales persists and accelerates it will bode ill for consumption in the general economy. In the current highly risk averse market enviroment, economic trouble has supported the safety trade to the US dollar.