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Economic Reports Primer, Pt 6: New and Existing Home Sales

August 1, 2016
Wash cycle: New and existing home sales data is an important economic indicator for traders. Learn more.

Your home is your castle, or so they say. But in the wake of the financial crisis, home ownership in the U.S. has been declining since 2008. The current home ownership rate stands at 63.5%, down from over 69% in 2004.

We've all heard about how millennials have been delaying buying a home for a variety of reasons, from high levels of student debt to uncertain job and wage prospects, or maybe they just like living with their parents. Not surprisingly, in the first quarter of 2016, home ownership rates were highest for householders ages 65 and over (78.8%) and lowest for the under 35 age group (34.2%), according to the U.S. Census Bureau.

When are those millennials going to get going? Well, the home sales outlook has improved in recent months amid ongoing improvement in the labor market and historically low mortgage rates. But what exactly is the home sales outlook?

Each month, economists and traders turn to the existing and new home sales reports to gauge current activity in this critical area of the economy and develop an outlook for home sales.

Report name: Existing Home Sales Report
Released by: National Association of Realtors
Release date: On or near the 25th of each month
Release time: 10 a.m. ET

Best trait: The home sales reports provide good insights into the potential "multiplier effect" for the economy, says Patrick O'Hare, chief market analyst at Simply put, when people buy a home, it's not just the home they are spending dollars and cents on.

"When a home is bought, people want to make it their own. That means new appliances, maybe a new roof, new furniture. The trend in home sales provides good insight as to the economic and personal spending outlook," says O'Hare.

Good tip: The U.S. Department of Commerce releases a separate report detailing the pace of new home sales. However, the existing home sales report represents roughly 90% of total home sales each month and may be the more significant report to watch as an economic gauge, O'Hare notes.

One weakness: "It's a little dated," O'Hare says. "Our economy is so big that it does take time to compile the data and get a read on monthly activity. It is released three to four weeks after the reported month. Also, the reports are subject to revision. Never take the initial report at face value, because they are often revised," he adds.

Tradability rating:
(a) Tends to be ignored. (b) Depends on overall trading climate. (c) Don't miss this one.

O'Hare ranks the existing home sales report a 5 on a scale of 1 to 10. For the daytrading crowd, however, he advises monitoring the new home sales report each month. "That offers more tradability in an industry-specific way," O'Hare says, as it often generates volatility in home builder stocks. Meanwhile, the existing home sales data can impact the broader stock market. "Market participants are looking at this as a potential piece of insight for consumer spending activity."

Current read: In May, existing home sales increased 1.8% to a seasonally adjusted 5.53 million rate. That marked the highest pace of home sales since February 2007, O'Hare said.

Despite the recent improvement in home sales, it still remains about 25% below peak levels, which registered around a 7.3 million annual rate back in September 2005, according to O'Hare.

Overall, the key fundamentals for continued improvement in the housing market remain in place, which include low mortgage rates, improvement in the labor market, and modest income growth. "The problem is that home prices have been going up at a faster rate than incomes have. It is difficult for the first-time homebuyer from an affordability factor," O'Hare said.

Mark your calendar: The next existing home sales report will be released by the National Association of Realtors on August 24.

Next Step: See This Data in Action

We get it, now you want to compare the correlation between Consumer Spending data and Housing Sales. We’re one step ahead of you. 

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