Existing Home Sales (Sep.)

Home sales rise, but improvement will be short-lived

  • The 7.0% m/m rise in existing home sales in September does not mark the start of an upward trend in activity. With mortgage rates rising, inventory close to record lows and home buying sentiment at 39-year lows sales are set to trend down over the next six-months. Beyond that, a gradual improvement in supply and less rampant house price growth will help sales slowly rise to around 5.75m annualised by end-2023.
  • Existing home sales increased by a substantial 7.0% m/m in September to 6.29m annualised, an eight-month high. That still left sales down 2.3% compared to their unsustainably high level last year, but up 17.4% compared their pre-COVID-19 level two years ago.
  • However, we expect that improvement will prove short-lived. Rising mortgage rates are starting to weigh on housing demand. Rates rose to a six-month high of 3.23% last week, and mortgage applications for home purchase dropped to a six-week low. A rise in the 10-year Treasury yield since then points to a further increase in mortgage rates, and we forecast they will end the year at around 3.5%. The slowdown in buyer traffic reported by realtors also points to a drop in sales over the next couple of months. (See Chart 1.)
  • And conditions remain tight on the supply side. At 1.15m, the number of homes for sale dropped for the second consecutive month to just shy of a record low. That, coupled with soaring house prices, has pushed home buying sentiment to 39-year lows. Admittedly, a fall in the first-time buyer share to 28%, a six-year low, should help inventory improve from here. (See Update.) But progress will be slow, and a lack of inventory will constrain sales for some time yet. Overall, we expect existing home sales will fall back to around 5.70m annualised by the middle of next year, before improvements in inventory, and slower house price growth, help sales tick-up to 5.75m by end-2023.

Chart 1: Existing Home Sales & Buyer Traffic

Sources: Refinitv, NAR

Table 1: Existing Home Sales (Millions Annualised)

Sep-20

Oct

Nov

Dec

Jan-21

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Existing Home Sales

6.44

6.73

6.59

6.65

6.66

6.24

6.01

5.85

5.78

5.87

6.00

5.88

6.29

(%m/m)

7.9

4.5

-2.1

0.9

0.2

-6.3

-3.7

-2.7

-1.2

1.6

2.2

-2.0

7.0

Homes for Sale1

1.34

1.32

1.28

1.24

1.21

1.18

1.16

1.17

1.16

1.15

1.18

1.16

1.15

Months’ Supply1,2

2.5

2.3

2.3

2.2

2.2

2.3

2.3

2.4

2.4

2.4

2.4

2.4

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, +1 646 934 6640, matthew.pointon@capitaleconomics.com

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