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Economic Indicator — March 22, 2021

 

Existing Home Sales Moderate in February

 

Summary

Existing Home Sales Fell 6.6% in February to a 6.22 Million-Unit

Annual Pace

Existing home sales fell 6.6% in February, which was weaker than consensus estimates. Data for the prior month were also revised slightly lower. Despite the weaker report, the pace of existing home sales remains exceptionally strong. February's 6.22 million-unit pace is 9.1% higher than last February, which marked the last data point prior to the pandemic. Sales continue to be held back by record low inventories. Aordability is also becoming more challenging. The median price of an existing home has risen 15.8% over the past year to $313,000.

Economist(s)

Mark Vitner

Senior Economist | Wells Fargo Securities, LLC mark.vitner@wellsfargo.com | 704-410-3277

 

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 04 06 08 10 12 14 16 18 20 Existing Home Sales Seasonally Adjusted Annual Rate, In Millions

Existing Home Sales: Feb @ 6.22M

Source: U.S. Department of Commerce and Wells Fargo Securities

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Existing Home Sales Are Being Constrained by Low

Inventories

Existing home sales fell 6.6% in February and sales were revised slightly lower for the prior month, with more complete data showing sales at a 6.66 unit pace, down from a 6.69 million-unit pace. Existing home sales reect closings and tend to lag pending home sales, or purchase contracts, by one to two months. February's existing home sales reect contracts signed in December and January, when mortgage rates were about 30 basis lower than the 3.09% averaged in mid-March. The recent pullback in existing home sales now more closely mirrors pending home sales data. Even with a pullback in the overall sales pace, existing home sales remain exceptionally strong. February's 6.22 million-unit pace is 9.1% above its year-ago pace, and the 6.51 million-unit pace averaged over the past three months is 15.4% above the 5.64 million homes sold in all of 2020. Sales will likely moderate further in coming months, reecting low inventories and the impact of harsh winter weather, particularly in Texas during February. Aordability is also becoming more challenging, with the median price of an existing home jumping 15.8% over the past year to $313,000. The spike prices also reects a shift in composition of sales, however, with more buyers competing for larger homes priced above the median, which has pulled both the average and median price higher over the past year.

60 80 100 120 140 160 3 4 5 6 7 8 01 03 05 07 09 11 13 15 17 19 21

Existing Home Sales vs. Pending Home Sales

Millions, SAAR (Left); Index, 2001=100 (Right) Existing Home Sales: Feb @ 6.22M (Left Axis)

Pending Home Sales: Jan @ 122.8 (Right Axis)

Source: National Association of Realtors and Wells Fargo Securities

There Are More Realtors Than There Are Homes

for Sale

An article in this morning's Wall Street Journal made light of the fact that there are more realtors today than there are homes for sale. The anomaly reects the exceptionally low level of existing home inventories today. Total housing inventories at the end of February were just 1.03 million units, which is 29.5% below last February. The National Association of Realtors notes that homes tended to remain on the market for just 20 days in February, down from 36 days in February 2020, and 74% of existing homes sold in February 2021 were on the market for less than a month. The exceptionally low number of homes on the market today reects the extraordinary crosscurrents brought about by the pandemic. Social distancing requirements greatly increased housing demand, as more people needed space at home to work remotely and accommodate remote schooling needs. Demand in the trade-up market has been particularly strong. With more people spending more time at home, however, fewer homeowners, particularly those that might have downsized at this point in their lives, have chosen to sell their home. The conuence of more buyers and fewer willing sellers has made competition for homes incredibly intense, hence the extraordinary drop in inventories and exceptionally short period of time homes are remaining on the market.

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 99 01 03 05 07 09 11 13 15 17 19 21 Inventory of Existing Homes for Sale

Homes for Sale at End of Month, Millions

Total Inventory: Feb @ 1.03M

Source: National Association of Realtors and Wells Fargo Securities

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Prices Have Surged on Strong Underlying Demand

The 15.8% surge in home prices over the past year has raised concerns that the housing market is on the verge of another bubble. While that always remains a possibility at some point in the future, home prices appear to have been pulled higher this past year due to the imbalance of the supply and demand of existing homes rather than an increase in speculation. Demand for homes has been strongest at the upper-end of the price range, where the supply of homes is unusually tight.

Inventories are also tight at the lower-end, however, with many lower-price homes purchased by investors during the aftermath of the nancial crisis and converted to rental properties. At that time, this transition was thought to mark a short-term shift in the housing market. The emergence of single-family rental homes as an asset class has been enduring, however, and will likely prove permanent.

Despite the unusual cyclical and secular shifts in the housing market, we feel that home price appreciation will moderate over the course of this year. Other price measures that incorporate repeat sales of the same properties show smaller price gains than the median price data. We expect price gains to moderate as fears about COVID subside, amid lower case counts and rising vaccinations, and as more homeowners choose to put their homes on the market. -32% -24% -16% -8% 0% 8% 16% 24% -32% -24% -16% -8% 0% 8% 16% 24% 04 06 08 10 12 14 16 18 20 Home Prices

Year-over-Year Percent Change

Median Single-Family Sale Price: Feb @ $317,100 Median Sales Price 3-M Mov. Avg.: Feb @ 14.7% FHFA (OFHEO) Purchase Only Index: Jan @ 13.2% S&P Case-Shiller Composite 10: Dec @ 9.8%

Source: National Association of Realtors, FHFA, S&P Case-Shiller and Wells Fargo Securities

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Subscription Information

To subscribe please visit: www.wellsfargo.com/economicsemail

The 2021 Annual Economic Outlook: Aftershocks and Divergence in the Post-Pandemic Economy is available at wellsfargo.com/economicoutlook

Via The Bloomberg Professional Services at WFRE

And for those with permission at www.wellsfargoresearch.com

Economics Group

Jay H. Bryson, Ph.D. Chief Economist (704) 410-3274 jay.bryson@wellsfargo.com Mark Vitner Senior Economist (704) 410-3277 mark.vitner@wellsfargo.com Sam Bullard Senior Economist (704) 410-3280 sam.bullard@wellsfargo.com

Nick Bennenbroek International Economist (212) 214-5636 nicholas.bennenbroek@wellsfargo.com Tim Quinlan Senior Economist (704) 410-3283 tim.quinlan@wellsfargo.com

Azhar Iqbal Econometrician (212) 214-2029 azhar.iqbal@wellsfargo.com Sarah House Senior Economist (704) 410-3282 sarah.house@wellsfargo.com Charlie Dougherty Economist (704) 410-6542 charles.dougherty@wellsfargo.com Michael Pugliese Economist (212) 214-5058 michael.d.pugliese@wellsfargo.com Brendan McKenna International Economist (212) 214-5637 brendan.mckenna@wellsfargo.com Shannon Seery Economist (704) 410-1681 shannon.seery@wellsfargo.com Jen Licis Economic Analyst (704) 410-1309 jennifer.licis@wellsfargo.com Hop Mathews Economic Analyst (704) 383-5312 hop.mathews@wellsfargo.com Nicole Cervi Economic Analyst (704) 410-3059 nicole.cervi@wellsfargo.com Sara Cotsakis Economic Analyst (704) 410-1437 sara.cotsakis@wellsfargo.com Coren Burton Administrative Assistant (704) 410-6010 coren.burton@wellsfargo.com

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Required Disclosures

This report is produced by the Economics Group of Wells Fargo Securities, LLC, a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes this report directly and through aliates including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Clearing Services, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Europe S.A., Wells Fargo Securities Canada, Ltd., Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC is registered with the Commodity Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. is registered with the Commodity Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. Wells Fargo Securities, LLC and Wells Fargo Bank, N.A. are generally engaged in the trading of futures and derivative products, any of which may be discussed within this report.

The information in this report has been obtained or derived from sources believed by Wells Fargo Securities, LLC to be reliable, but Wells Fargo Securities, LLC does not guarantee its accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or upon any opinions set forth herein. Such information and opinions are subject to change without notice, are for general information only and are not intended as an oer or solicitation with respect to the purchase or sale of any security or other nancial product or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from aliated banks and is a wholly owned subsidiary of Wells Fargo & Company. © 2021 Wells Fargo Securities, LLC

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For recipients in the United Kingdom, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment rm authorized and regulated by the Financial Conduct Authority. For the purposes of Section 21 of the UK Financial Services and Markets Act 2000 (“the Act”), the content of this report has been approved by WFSIL, an authorized person under the Act. WFSIL does not deal with retail clients as dened in the Directive 2014/65/EU (“MiFID2”). The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. For recipients in the EEA, this report is distributed by WFSIL or Wells Fargo Securities Europe S.A. (“WFSE”). WFSE is a French incorporated investment rm authorized and regulated by the Autorité de contrôle prudentiel et de résolution and the Autorité des marchés nanciers. WFSE does not deal with retail clients as dened in the Directive 2014/65/EU (“MiFID2”). This report is not intended for, and should not be relied upon by, retail clients.

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