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. Aordability 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
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 reect closings and tend to lag pending home sales, or purchase contracts, by one to two months. February's existing home sales reect 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, reecting low inventories and the impact of harsh winter weather, particularly in Texas during February. Aordability 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 reects 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 reects 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 reects 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 conuence 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
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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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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