What are existing home sales?
Existing home sales are computed and reported monthly by the NAR (National Association of Realtors). The NAR stated that the report focuses on the number and prices of “single-family homes, townhomes, condominiums and co-ops.” Apart from figures for the overall nation, the report provides information for the West, Midwest, South, and Northeast regions of the US. Existing home sales account for nearly 90% of all the house purchases in the US.
February 2015 report
NAR’s February 2015 report showed that existing home sales rose 1.2% to an annual rate of 4.88 million units. The sales rose from an unrevised 4.82 million pace in January 2015. However, the pace remained below the 5 million sales mark. It breached the mark for six out of eight months.
In a press conference following the release of the monetary policy statement on March 18, Fed Chair Janet Yellen stated that “the recovery in the housing sector remains subdued.” This is supported by these lackluster readings.
The primary reason for the fall in February was the low level of housing inventory. Sales were mixed across the four regions of the US. Sales were led by the West. Sales climbed 5.7% month-over-month.
Housing inventory rose 1.6% in February 2015 to 1.89 million pre-owned homes for sale. However, it was lower by 0.5% from the level last year. At the current sales pace, it represents a supply for 4.6 months. This is the same as in January 2015. The lower housing supply—compared to the level last year—is offsetting buyer demand. This is due to fewer selection choices. It’s also keeping house prices high for first-time homebuyers.
Rising house prices can be seen in terms of the median price estimate for all types of existing homes. Prices stood at $202,600 in February 2015. This was up 7.5% from a year ago. This is the largest rise since February 2014. At that time, the gain in prices was 8.8%.
Some first-time buyers return
First-time homebuyers made up 29% of the total sales in February 2015. This was the first increase since November 2014. It was marginally better than 28% in January. These buyers averaged 29% of the entire sales in 2014. This was the same as 2013.
US builders—like KB Home (KBH), PulteGroup (PHM), and D.R. Horton (DHI)—have more exposure to first-time homebuyers. Investors who want to gain exposure to the entire homebuilding sector should look at the S&P SPDR Homebuilder ETF (XHB) or the iShares Dow Jones US Home Construction Index Fund (ITB).
In the next part of this series, we’ll look at what the new home sales trend indicated.