10) Economic Indicators: Existing Home Sales

by · October 16, 2010

What It Is

Every fourth week of the month, and before the New Home Sales Reports, the National Association of Realtors releases the Existing Home Sales Reports. Its information is derived from the previous month, focusing on the average sales price in different regions of the country. Note that those surveyed are closed existing homes. A closed home will run between 6 and 8 weeks, meaning the values you will find in the report are homes that have been sold out around 2 months before the report’s release.

 

Basic Information

Three different factors are being considered when creating the report. These include the monthly supply or inventory level, the median selling price and the price of properties sold, as well as the figure representing the amount of time needed to get rid of all the remaining inventory within the period.

There are four geographical regions that are being surveyed: West, South, Midwest, and Northeast. The data are raw, but adjustments have to be made according to seasons. Seasons do have an impact on the consumer’s ability to buy a home. The changes in price data are compared based on a year-to-year or previous month’s period.

How the Report Is Valuable

There’s quite a difference between housing starts report and existing home sales reports, though both can still be interrelated. For one, the U.S. Leading Index, created by the Conference Board, excludes existing home sales for reference. Moreover, housing starts indicate the supplies of homes among consumers.

Nevertheless, this report is still considered a leading indicator. The demand proves to be higher whenever the country is in the process of economic recovery. The information can also tell you the leniency of the housing market. Moreover, a high figure in the month’s supply may well indicate that in the coming months the value of the existing homes will fall down in order to reduce inventory and bring the market into its more normal environment. Existing home sales also include sales of condominium. This is not found in home starts.

Mortgage rates can also have a huge effect on the sales of homes. Consumers tend to forgo home purchase whenever the interest rates go up. After all, this also means that the rate of mortgages can be quite high. On the other hand, if there’s a raise in home sales, other sectors also benefit, especially those engaged in the sales of home furnishing and construction and insurance services.

This report also has a huge sample size, which means the data is more comprehensive and will require minimal revisions in the succeeding reports.

Things to Watch Out For

This is viewed as not too timely because of the time period that exists between the sale and closing of the property. It also doesn’t provide enough information on the kinds of houses sold, unlike housing starts, which provide figures for single-family and multiple units. It can also be volatile due to seasonal adjustments.

To maximize the report, you can use this together with the housing starts report. You can also make full use of it if you want to determine the general condition of the housing market, especially during economic recession.

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