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Declining Home Sales Moderates Price Appreciation in August

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US existing home sales dipped 4.8% in August

There are many indicators that track housing activity. While housing starts and building permits data provide information on the production front, existing home sales data reveals consumer sentiment toward housing. US existing home sales dipped 4.8% to 5.31 million in August, which is below the consensus estimate of 5.50 million.

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XHB falls with poor existing home sales data

The housing-focused exchange-traded fund, the SPDR S&P Homebuilders ETF (XHB) tracks the housing subindustry. Over the past month, the SPDR S&P Homebuilders ETF (XHB) was down 2.04% as of September 21. It includes stocks from all aspects of the housing sector such as homebuilding, furnishing, improvements, and appliances. There is a strong correlation between existing homes sales and consumer spending on durables such as furniture, appliances, and electronics.

XHB’s top holdings include 3.33% weight of housewares and accessories stock such as Helen of Troy (HELE), which is up 4.01% over the past month as of September 21. During the same period, home furnishing stores such as Williams-Sonoma (WSM) and Bed Bath & Beyond (BBBY) were down 7.56% and 2.23%, respectively. These stocks have a weight of 3.22% and 3.09% in the ETF.

Homebuilding stocks D.R. Horton (DHI) and TRI Pointe Group (TPH) were down 1.03% and 4.99%, respectively, over the past month as of September 21.

Declining sales activity, moderating appreciation in home prices

Total housing inventory has increased 1.3 % to 2.29 million existing homes available for sale. Unsold inventory stands at a 5.2-month supply at the current sales pace, compared with 4.9 months in July. Declining sales activity has helped prices increase, somewhat moderating a rally seen earlier this year.

The share of first-time buyers rose to 32 % in August, compared with 28% in July. However, there was a slight decline to 22% in all-cash sales transactions. A decline in existing home sales data may reflect that consumer confidence remains subdued about economic growth. However, falling home prices, better job prospects, and low interest rates may attract buyers.

Increase in consumer sentiment and business expectations provides momentum for the economy to grow. In the next article, we’ll discuss the recently released business inflation expectation.

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