Idle Thoughts On Today's Existing Home Sales Report -- March 22, 2021

Economists and historians will sort this out twenty-five years from now. 

For now, this is what a google search provided:

 
Most recent existing home sales: there will be many explanations "why." Those explanations concern me not.

What interests me is anticipating the rest of 2021. Looking forward to 2022 is (probably) too far in the future.

Some observations with regard to the most recent existing home sales data:

• the most recent data suggests pent-up demand, low interest rates, a ton of saved money over the past year, a highly rewarding year for investors, YOLO, FOMO
• the rebound in existing home sales in 2009 - 2010 looked impressive at the time, but in hindsight, was quite anemic and did not last long;
• after a second drop in late 2010 - 2011, existing home sales climbed slowly and plateaued at levels seen in 2000;
• in other words, a pretty dismal two decades, from 2000 - 2020, interrupted by an anomalous 2004 - 2005;
• most interesting observation in today's report: "we" failed to set a new record, that record was set in 2005 - 2006; and not only did "we" miss, we missed by a lot;
  

The big question:

• although sales may continue to slump month-over-month going forward, will existing home sales drop all the way back to pre-pandemic levels?

In attempting to answer that big question:

• are the following still in play? pent-up demand; low interest rates; a ton of saved money over the past year; a highly rewarding year of investing, YOLO, FOMO?
• what is different, if anything, between "then" and "now"?

Answers:

• I think so: I think pent-up demand, low interest rates and all that other stuff are still in play.

But the other question is much more important: what is different, if anything?

To answer that question, ask this question: when does an existing home sell?

• Answer: when someone buys it.

Who buys existing homes:

• renters moving into owned homes;
• current home owners moving from one home, buying a "new" home -- some of those "new" homes will be existing homes: and,
  
• that's pretty much it (minor: college graduates; immigrants; REITs; etc)

So, are current home owners moving from one home to another "new" home?

• big story this year: folks fleeing California, other high-tax states to Florida, Texas, Idaho, Utha
• big story this year: folks fleeing undesirable locations (high crime, poor schools, etc) to more desirable locations (even if staying within same state NYC to NY state; or, same region, NY state to Connecticut)

Cut to the chase: all things being equal, annualized existing home sales should continue to rise if only to reflect folks fleeing high tax states and/or fleeing undesirable locations.

Obviously it's a net zero-sum game: equal number of existing homes being sold, equal number of existing homes being bought, but the overall number of sales increasing. 

The problem, as noted in the linked article: lack of inventory. 

Whatever happens, it will be interesting to follow (it was not interesting to follow between 2004 - 2020 (at least in hindsight).

What doesn't matter is month-over-month comparisons. 

What does matter: annualized sales as reported on a monthly basis compared to the pre-pandemic level of 5.5 million or the pre-2002 level of 5.0 million.

Today's annualized numbers lower than last month (doesn't matter), much higher than pre-pandemic numbers (does matter).

The Covid-10 / Chines flu pandemic is absolutely fascinating on so many levels.

Now that we have that as background, the CNBC report:

• closed sales of existing homes in February dropped a larger-than-expected 6.6% compared with January, according to the National Association of Realtors.
• that put them at a seasonally adjusted, annualized rate of 6.22 million units, which was 9.1% higher compared with February 2020
• the supply of homes for sale fell 29.5% year over year, the largest annual decline ever, to 1.03 million homes.