- Existing home sales fell by 1.7% month-on-month to 5.35 million units annualized in November. The headline print came in below the consensus forecast, which called for milder decline of 0.4%. Sales in October were also revised down to 1.5% from 1.9%.
- The monthly decline was concentrated in the single-family segment, where sales retreated by 60k to 4.79 million units (-1.2%) on the month. Sales in the smaller condo/co-op segment fell by 30k (or -5.1%) to 560k.
- Resale activity was mixed across the regions. Home sales fell in the West (-3.5%), the fourth consecutive monthly decline, and in the South (-3.9%). The other two regions recorded an improvement, with activity up 2.3% in the Midwest and 1.4% in the Northeast.
- The number of homes available for sale fell 7.3% from a year earlier to (a seasonally unadjusted) 1.64 million units – a record low for the month. At the current sales rate, unsold inventory is at a 3.7-month supply, down from 3.9 months in the month prior.
- Low inventory levels continue to keep upward pressure on prices, despite a slight deceleration this month. The median existing home price was up 5.4% year-on-year in November, compared to 6.2% y/y in the month prior.
Key Implications
- November’s decline in existing home sales, coupled with a slight downward revision to the gain the month prior are disappointing. Still, it’s hard to discount the progress that has been made over the last several months. Sales have essentially exhibited a V-shaped pattern in the last two years, trending lower throughout 2018 and recovering this year. Indeed, activity has improved notably since the weak start to 2019, with existing home sales up 8.5% over the eleven-month period. The big change this year has been the drop in mortgage rates, which led to a sharp improvement in affordability.
- Housing demand continues to grind against very limited supply, however, which has prevented resale activity from recording larger gains and has led to a re-acceleration in home price growth. This narrative remained on full display in November, with inventories near record lows, and home price growth at 5.4% – still notably faster than 3.5% at the start of the year.
- The moderately positive trend in home sales is poised to extend further out into 2020. Low mortgage rates will continue to lend support to housing demand, alongside a tight labor market. And while low inventory levels will continue to limit the pace of gains to moderate levels in the near-term, the supply side is poised to offer more cooperation further out.
- Current market conditions favor additional new construction. Housing permits have already risen to the highest level since mid-2007. Meanwhile, builder confidence reached a two-decade high this month, indicating that the positive construction trend has room to run. Since new single family units take about seven months and multi-family units about fourteen months to complete, past increases in starts imply that additional new inventory will continue to trickle in, which will help loosen up some of the housing gridlock.
