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IPFS News Link • Housing

Strategist: May Existing Home Sales Will Crash Below Expectations

• Zero Hedge - Tyler Durden

→ EHS will surprise downward due to technical and fundamental factors:

Buyers signed contracts in April for most May sales. As a result, lockdowns made it impossible for the rebound in closings to be finalized before June.

Local and state reports confirm that many sellers waited before putting their homes on the market, restricting supply (and choices for buyers).

→ EHS will rebound sharply in June as suggested by first data related to pending home sales.

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1. Data construction implies that May will reflect the worst of the crisis

Most of economists never looked at the construction of EHS data which explains a large part of miscalculation. According to the Census Bureau, "the majority of transactions are reported when the sales contract is closed. Most transactions usually involve a mortgage which takes 30-60 days to close. Therefore, an existing home sale (closing) most likely involves a sales contract that was signed a month or two prior." In other words, most buyers placed their offers in April (and to a lesser extent in March), during the height of stay-at-home orders. As a result, May existing home sales will reflect the worst of the crisis, with a print likely below 4.00M.

2. Local/state data showed that sales decline was broad-based across the country

Local/state figures and other proxies suggest that national existing home sales (non-seasonally adjusted: NSA) are likely to plunge by more than 30% YoY in May (which could be close to the largest decline ever). However, it's worth noting that the crash was amplified by calendar effects, namely fewer business days in May 2020 (compared to May 2019).