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Fundamental Analysis

Existing Home Sales Surge in March as Tight Inventories Support Rapid Price Growth

Typography

Existing home sales rose by an impressive 4.4% m/m to 5.71 million (annualized) in March, marking a strong rebound from the month prior when sales activity advanced an at slightly downwardly-revised 5.47 million (annualized) pace. The headline print came in significantly higher than market expectations which called for a more moderate rebound to 5.60 million.

The gains were concentrated in the single family segment where transactions rose by 4.3% to 5.08 million. Sales in the smaller and more volatile condo/co-op segment rebounded by 5.0% to 630 thousand.

On a regional basis, sales activity improved across most regions, rising in the Northeast (10.1%), Midwest (9.2%) and South (3.4%), while activity continued to pull back in the West (-1.6%) which posted a second consecutive monthly decline. Still, the sales pace remained higher than year-ago levels across the board.

The number of homes available for sale rose 5.8% on the month but remained low at 1.83 million by historical standards, down 6.6% from year-ago and accounting for just 3.8 months' worth of supply at the current sales pace. The low inventory levels are keeping upward pressure on prices, with the median price advancing 6.8% y/y – a strong print despite a slight deceleration from the 7.6% pace in the prior month.

First time homebuyers accounted for 32% of sales, unchanged from the month prior and up 2pp from year-ago.

Key Implications

Existing home sales activity has been quite volatile since December. The uneven performance can be partly explained by the rapid rise in interest rates immediately following the election which likely swayed buyer behavior and brought forward some contract signing, while unseasonal weather likely also contributed to volatility in the last few reports. Still, seeing through the volatility, the trend is a positive one, with the strong rebound in March to a decade-high a welcome development.

The rise in inventory levels is a very welcome development which helped contribute to the better-than-expected print, but more is needed to sustain the current sales pace. In the near-term, sales activity will likely remain constrained by still-low inventory levels and fast-rising prices which continue to outstrip income growth.

The Fed is poised to hike rates twice more this year, and thrice next year, with long-term borrowing rates likely to increase accordingly. This will further weigh on affordability and could dent demand for homes somewhat. Still, the medium term outlook remains upbeat, as rising employment, wages, and incomes are expected to provide considerable offset.

About the Contributor
TD Bank Financial Group
Author: TD Bank Financial Group Website: http://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
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