Economic Indicators: Existing Home Sales
The “Existing Home Sales Report,” published monthly, tallies the number of sales of existing homes that closed along with average sales prices by geographic region. The "closed" distinction is important because most closing periods are anywhere from six to eight weeks, so values listed are likely to relate to sales made about two months prior. The data is collected and released by the National Association of Realtors. The release date is on or about the 25th of each month.
There are three important metrics in this report; in addition to the aggregate number of existing homes sold and median selling prices, inventory levels are provided through the "months’ supply" figure, a number that represents the length of time in months required to burn through all of the existing inventory measured during the period.
Data is provided raw and with seasonal adjustments. This is because weather is a big factor in determining month-to-month demand. As with the “Housing Starts Report,” the data is also broken down by geographic region (Northeast, Midwest, South and West). Price data will show percentage changes from the year-over-year period and the prior month.
Differences between new and existing home sales
The Census Bureau defines a new home sale as occurring with the signing of a contract or the acceptance of a deposition. The home can be at any of various stages of construction. The National Association of Realtors defines an existing home sale as being completed when the sales contract is closed. Most existing home sales involve a mortgage which can take 30-60 days to procure.
Given these differences, trends in new home sales tend to lead sales of existing homes by a month or two. Because of this lag, the National Association of Realtors created a data series that tracks pending sales of existing homes.
Why it’s important to investors
Whereas the Housing Starts release deals with construction levels and is therefore a supply-oriented housing indicator, existing sales are much more about aggregate demand among consumers. While not included in the Conference Board's U.S. Leading Index, existing home sales are considered a leading indicator as well because higher levels are typically reached when the economy is coming out of a recession.
Because of the lag between when a sale is made and when closing occurs, the report is not as timely as the Housing Starts Report, but the sample size is larger and less likely to have large revisions. Also, condominium sales are included in this report, but not in the starts report.
The inventory metric also points to how much slack exists in the housing market, as a high reading in the month supply figure means that prices could fall as inventory is worked down to more normalized levels. (For more insight, see What are leading, lagging and coincident indicators? What are they for?)
- Large sample size
- Together with housing starts provides a clear picture of the strength of the housing market
- A key leading indicator and predictor of future consumer purchases such as home furnishings and insurance services.
- Shows the level of demand within housing market
- Released before the New Home Sales Report in the given month
- Includes condo sales, which are not included in the Housing Starts Report
- No detailed information on types of homes, just median sales prices.
- Subject to large bouts of seasonality