Existing Home Sales (Feb.) - Capital Economics
US Housing

Existing Home Sales (Feb.)

US Housing Market Data Response
Written by Matthew Pointon
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The boom in housing market activity started to moderate in February, with existing home sales recording a substantial drop. Record low inventory will be constraining activity, as will worsening affordability. Looking ahead, a further rise in mortgage interest rates to around 4.0% by the end of the year will help bring sales back toward their pre-COVID trend. We expect sales will end the year at around 5.7m annualised.

Home sales start to come back to earth

  • The boom in housing market activity started to moderate in February, with existing home sales recording a substantial drop. Record low inventory will be constraining activity, as will worsening affordability. Looking ahead, a further rise in mortgage interest rates to around 4.0% by the end of the year will help bring sales back toward their pre-COVID trend. We expect sales will end the year at around 5.7m annualised.
  • Existing home sales started to come back to earth in February, with a decline of 6.6% m/m to 6.22m annualised. That was the the largest month-on-month decline since last May, although that still left sales up 9.1% compared to a year earlier. Note that as existing home sales are recorded at contract closing, February’s data will not reflect the impact of severe weather in the South last month. A further decline can therefore be expected in March.
  • Beyond that, record low inventory will constrain sales. After seasonal adjustment the number of homes for sale dropped for the ninth month in a row and, at 1.15m, inventory is down 30% over the year. That is one reason why buyer traffic has been edging back in each month since September last year. That said, at 75 in February after seasonal adjustment, there are still plenty of people looking to buy. (See Chart 1.)
  • Higher mortgage rates will also weigh on housing market activity. We now expect the 30-year mortgage rate will end the year at around 4.0%. But with the economy reopening, frustrated buyers still looking and the surge in savings still bolstering down payments, home sales will moderate, rather than crash. (See Update.) We therefore expect existing home sales will ease back over 2021, ending the year at around 5.7m annualised.

Chart 1: Existing Home Sales & NAR Buyer Traffic

Source: NAR

Table 1: Existing Home Sales (Millions Annualised)

Feb-20

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-21

Feb

Existing Home Sales

5.70

5.35

4.37

4.01

4.77

5.90

5.97

6.44

6.73

6.59

6.65

6.66

6.22

(%m/m)

5.4

-6.1

-18.3

-8.2

19.0

23.7

1.2

7.9

4.5

-2.1

0.9

0.2

-6.6

Homes for Sale1

1.59

1.56

1.47

1.47

1.44

1.39

1.37

1.34

1.32

1.27

1.23

1.19

1.15

Months’ Supply1,2

3.3

3.5

4.0

4.4

3.6

2.8

2.8

2.5

2.3

2.3

2.2

2.1

2.2

Source: NAR. 1Seasaonally-adjusted by Capital Economics. 2Number of months it would take to sell all homes for sale at current pace of sales


Matthew Pointon, Senior Property Economist, matthew.pointon@capitaleconomics.com