Existing home sales

What Are Existing Home Sales?

Existing home sales refer to the completed transactions involving previously constructed houses, condominiums, and co-operative apartments. This crucial metric is a key component of real estate market analysis and falls under the broader category of economic indicators. Unlike new construction, existing home sales reflect the resale activity of properties that have been previously owned and occupied. The data provides insights into the health of the housing sector, consumer confidence, and overall economic activity, often influencing expectations about Gross Domestic Product and employment.

History and Origin

The collection and reporting of existing home sales data gained prominence as the housing market became a more significant component of the broader economy. In the United States, the National Association of REALTORS® (NAR) is the primary source for this widely followed statistic, compiling monthly reports on completed sales transactions for single-family homes, townhomes, condominiums, and co-ops. NAR's methodology involves gathering data from local associations, boards, and multiple listing services (MLSs) nationwide, representing a significant portion of all existing-home sale transactions. ²⁸The historical collection of housing data by government bodies like the U.S. Census Bureau also provides a long-term perspective on housing trends and values in the United States, dating back decades.
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Key Takeaways

• Existing home sales measure the number of previously owned homes, condos, and co-ops sold each month.
• This metric is a vital economic indicator, reflecting housing market health and broader economic trends.
• Data is primarily collected and disseminated by the National Association of REALTORS® (NAR).
• Fluctuations in existing home sales can signal shifts in consumer spending and overall economic momentum.
• The data is typically reported as a seasonally adjusted annual rate to account for predictable seasonal variations.

Interpreting Existing Home Sales

Existing home sales figures are typically presented as a seasonally adjusted annual rate (SAAR), which projects the current month's sales pace over an entire year, adjusted for typical seasonal fluctuations. This allows for more meaningful month-over-month and year-over-year comparisons. An increase in existing home sales generally indicates a strengthening housing market, often associated with robust economic growth, job creation, and favorable mortgage rates. Conversely, a decline can suggest a softening market, potentially due to rising interest rates, economic uncertainty, or reduced affordability. Analysts examine these figures in conjunction with other metrics, such as median home prices and housing inventory, to gauge the overall health and direction of the housing market.

²², ²³, ²⁴## Hypothetical Example

Consider a hypothetical scenario where the National Association of REALTORS® reports that existing home sales for June were at a seasonally adjusted annual rate of 4.2 million units. This figure represents the estimated total number of existing homes that would be sold over a year if the June sales pace continued.

An analyst reviewing this data would compare it to previous months and the same month in prior years. If May's existing home sales were 4.0 million units, the 4.2 million figure for June would indicate a positive trend, suggesting an increase in housing market activity. If, however, the median sales price also increased significantly, the analyst might also consider the impact on affordability for potential buyers, suggesting that while sales are up, higher prices could temper future demand.

Practical Applications

Existing home sales data serves multiple practical applications across various financial and economic sectors:

• Economic Forecasting: Economists and policymakers use existing home sales as a leading indicator of economic health. A robust housing market can signal future consumer spending on related goods like furniture and appliances.
• Investment Analysis: Investors in real estate, home improvement, and mortgage-related industries closely track existing home sales to identify market trends and potential investment opportunities. Publicly traded homebuilders, real estate investment trusts (REITs), and financial institutions are particularly sensitive to these figures.
• Monetary Policy Decisions: The Federal Reserve monitors existing home sales and other housing data when formulating monetary policy. While the Federal Reserve does not directly set mortgage rates, its actions on benchmark interest rates indirectly influence borrowing costs, which in turn affect housing demand and sales.
• ¹⁷, ¹⁸, ¹⁹, ²⁰, ²¹ Government Planning: Government agencies use housing statistics to inform urban planning, infrastructure development, and housing assistance programs.
• Real Estate Professionals: Real estate agents, brokers, and developers rely on existing home sales data to understand local and national market conditions, set pricing strategies, and advise clients.

Limitations and Criticisms

While existing home sales data is a widely used and valuable indicator, it has certain limitations and faces some criticisms:

• Lagging Indicator: Existing home sales represent completed transactions, meaning they reflect decisions made in previous months (when contracts were signed). Therefore, they can be a somewhat lagging indicator of immediate shifts in buyer sentiment or economic conditions. Pending home sales, which track signed contracts, are considered a more forward-looking measure.
• ¹⁵, ¹⁶ Data Accuracy and Collection: The data collection relies on surveys of local multiple listing services (MLSs) and real estate associations, which cover a significant portion but not all transactions. Issues such as changes in reporting methodologies, incomplete responses, or data entry errors at the local level can introduce minor inconsistencies.
• ¹³, ¹⁴ Exclusion of Private Sales: The reported figures primarily capture sales facilitated through real estate agents and MLSs. Private or "for sale by owner" (FSBO) transactions are often not fully captured, potentially understating the total volume of home sales.
• Impact of Supply and Demand Imbalances: The number of sales can be constrained by factors beyond buyer demand, such as a limited housing inventory. A low sales volume might indicate a lack of available homes rather than a lack of buyer interest, particularly in markets with high affordability challenges or significant undersupply.
• ¹¹, ¹² Sensitivity to Interest Rates: Existing home sales are highly sensitive to changes in mortgage rates. Sharp increases in rates can quickly cool the market, impacting sales volume even if underlying economic conditions remain strong.

#⁹, ¹⁰# Existing Home Sales vs. New Home Sales

Existing home sales and new home sales are both critical housing market indicators, but they measure distinct segments of the market and offer different insights. Existing home sales, as discussed, track transactions of previously owned residential properties. These sales comprise the vast majority (typically over 85-90%) of all residential real estate transactions in the United States. Th⁸ey reflect the resale market and are often seen as a barometer of overall consumer confidence and the willingness of current homeowners to move.

In contrast, new home sales measure the number of newly constructed houses for which a sale contract has been signed or a deposit accepted. This metric is significantly smaller in volume than existing home sales but is a direct indicator of homebuilder activity and residential construction. While existing home sales focus on the turnover of the existing housing stock, new home sales gauge the expansion of that stock. Both are vital for understanding the complete picture of the housing market, with new home sales often providing insights into future housing supply and construction-related economic activity.

FAQs

What organization reports existing home sales data?

The National Association of REALTORS® (NAR) is the primary organization that collects, compiles, and reports existing home sales data for the United States. Its monthly reports are widely cited by financial media and economists.

##⁴, ⁵, ⁶, ⁷# How often are existing home sales reported?

Existing home sales data is typically released on a monthly basis. The report usually comes out close to the middle of each month, reflecting sales from the previous month.

##³# Why are existing home sales considered an important economic indicator?

Existing home sales are considered important because they provide a snapshot of the housing market's health, which in turn influences broader economic activity. A strong housing market can boost consumer spending on home-related goods and services, contribute to employment, and reflect overall consumer confidence. It'²s also an indicator of affordability and the impact of mortgage rates.

Do existing home sales include foreclosures or short sales?

Yes, existing home sales figures generally include all completed transactions of previously owned homes, which can encompass foreclosures and short sales if they meet the criteria of a resale transaction. The data focuses on the ownership transfer of an existing property.

How do seasonal adjustments affect existing home sales data?

Seasonal adjustments are applied to existing home sales data to remove predictable variations that occur throughout the year, such as higher sales in spring and summer. This adjustment allows analysts to discern true underlying market trends more clearly, making month-over-month comparisons more reliable.¹