Existing Home Sales

Existing Home Sales

Highlights

• Existing home sales fell 1.2% in June from a downwardly revised 5.14 mln in May to 5.08 mln. The Briefing.com consensus expected existing home sales to increase to 5.28 mln.

Key Factors

The drop in home sales does not bode well for the future. It was expected that rising mortgage rates would accelerate demand in the near term as potential buyers aimed to lock in mortgages before rates went even higher. That was supposed to pull sales forward into May, June and July, before a payback period developed in the future.
• If this scenario played out in June, then the pool of potential buyers was smaller than most economists expected. There simply wasn't enough demand out there to keep sales moving at an increasing pace. That means the pullback, which we expected to begin in August, will be much sharper than previously thought. It would not be surprising if sales drop below 4.80 mln.
• Yet, it is also possible that potential buyers did not believe rates would increase much, if at all, from their current level. That would mean that there would be no surge in demand and sales levels would remain near their current level and growth would be flat.
• Sales trends over the next two months should explain which scenario has taken hold.
• Unfortunately, the underlying data within the sales report does not give any hint on which scenario is most likely occurring.
• Inventories rose slightly to 2.19 mln in June, which is a 5.2 month supply at the current sales pace. That is up from a 5.0 month supply in May, but is still well below normal inventories which generally average around a 6-month supply. 
• The lack of supply has helped sellers see large price gains. The median existing home price rose 13.5% y/y to $214,200.
• Distressed sales accounted for 15% of June sales. That was down from 18% in May and the lowest share since the National Association of Realtors started tracking this data in October 2008.
• First-time homebuyers made up 29% of June sales, which was up from 28% in May. During normal periods of buying and selling activities, first-time buyers account for 40% of the market.

Big Picture

• It will take a month or two to see if the drop in sales is the result of weakening or steady demand.

Category	JUN	MAY	APR	MAR	FEB
Existing Home Sales	5.08M	5.14M	4.97M	4.94M	4.95M
Months Supply	5.2	5.0	5.2	4.7	4.6
Median Price Y/Y	13.5%	12.6%	10.4%	11.6%	11.3%