Existing homes sales fell 3.7 percent in February to a 5.48-million unit pace. Home sales are now more in line with pending sales, which had fallen in recent months. Inventories rose slightly but remain unusually lean.
Home Sales Are Still Off to a Strong Start
Existing home sales slipped 3.7 percent in February but are still off to a strong start to the year. The decline was somewhat expected following January’s surprisingly strong 3.3 percent increase but February’s report did come in slightly below the consensus estimate and our own lower call. Sales have averaged a 5.56-million unit pace over the past three months and remain above their year ago levels nationally and at all four regional levels.
We were expecting sales to come in below consensus, largely due to recent declines in pending home sales, which are contracts for the purchase of an existing home. Pending sales do a reasonably good job of anticipating the future direction of existing home sales but tend to overstate the magnitude of swings, particularly when you get a big down month like we did in January, when pending home sales tumbled 2.8 percent. Most of the drop in pending sales was in the West, which tumbled 9.8 percent, and the Midwest, which fell 5.0 percent. Both areas saw the return of more typical winter weather following milder weather in January. We do not expect existing home sales to precisely follow pending sales lower, just as they did not precisely follow them higher when pending sales spiked early last year.
Lean Inventories Make This a Sellers’ Market
February’s dip in home sales allowed inventories to rebound somewhat. For-sale inventories rose 4.2 percent to 1.75 million homes. But even with the gain, the number of homes available for sale remains 6.4 percent lower than it was one year ago, continuing a string of year-to-year drops that stretches back 21 months. Relative to sales, there is now a 3.8-month supply of homes available for sale. A balanced market would have around a 5.5-month supply.
With overall inventories as low as they are, sellers are selling their homes very quickly. The typical home sold in February was on the market for just 45 days, which compares to 59 days one year ago. Moreover, 42 percent of the homes sold in February were on the market for one month or less. The hottest markets remain mostly in the West, including San Francisco, Seattle and Denver, where strong job growth in the tech sector and limited new construction has kept inventories incredibly lean.
By region, sales tumbled 13.8 percent in Northeast, fell 7.0 percent in the Midwest and declined 3.1 percent in the West. The South, which is by far the largest region for existing home sales, saw sales rise 1.3 percent, likely reflecting strong demand in Florida, Texas, Georgia and the Carolinas.
The median price of an existing home rose 7.7 percent over the past year. Prices are up the most in the West and South, where they are 9.6 percent higher than one year ago. By contrast, the median price of a home is up 6.1 percent over the past year in the Midwest and 4.1 percent in the Northeast.