Existing home sales rose 0.7%m/m to 5.39 million (annualized) in September, following a three-month losing streak. The headline print came in above market expectations which called for a moderate pullback of 0.9%. Despite the monthly advance, activity remained muted on a trend basis with sales down 1.5% from year-ago levels.

The monthly gain was concentrated in the single-family segment where transactions rose to 4.79 million, up 1.1% from 4.74 million in the month prior. Meanwhile, sales in the smaller condo/co-op segment fell 1.6% to 600 thousand.

Regional performances were mixed with activity improving in the West (3.3%) and Midwest (1.6%), holding steady in the Northeast (0.0%), and pulling back for a second consecutive month in the South (-0.9%).

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The number of homes available for sale rose 1.6% on the month but remained low by historical standards at a seasonally unadjusted 2.03 million. This is down 6.4% from year-ago levels and accounts for just 4.2 months’ worth of supply at the current sales pace, compared to 4.5 at the same time last year. Despite the low inventory, the upward pressure on median home prices continued to moderate, with prices advancing by 4.2% y/y compared to 5.5% in the month prior.

Overall, third quarter existing home sales fell 11.6% q/q (annualized), after declining by 4% in the prior quarter. The last time that activity pulled back for two consecutive quarters was in late 2013 and early 2014.

Key Implications

Today’s better-than-expected print is a welcome development, which comes on the heels of an extended losing streak. Existing home sales in September would have likely been somewhat stronger were it not for the hurricane impacts. Activity in the South, which accounts for an outsized 40% of overall sales, fell for a second consecutive month as purchasing decisions and closings were delayed in affected areas.

While volatility could persist in the near-term, we expect to see an improvement in momentum in the final stretch of the year as hurricane impacts fade. A rising trend in mortgage applications in recent weeks suggests that the next report could also see a positive print.

The September report brings the third quarter to a close, with sales activity having pulled back for two consecutive quarters. This trend is somewhat reminiscent of the late-2013 Taper Tantrum experience. Back then, rising mortgage rates were the main force behind the decline, while this time around severe inventory shortages and hurricane impacts are largely responsible.

Ongoing supply shortages will continue to keep a lid on activity, but we expect some improvement in this front as well, albeit very gradually. While moderating, still-robust price growth should help nudge up inventories as existing homeowners continue to warm up to the idea of listing their properties. At the same time, robust demand for homes driven by labor market gains should encourage more homebuilding which will also help ease gridlock in the resale market. The uptick in builder confidence in October provides some evidence in support of this narrative.


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