Disappointing Existing Home Sales: Short Analysis With Charts

Monday morning, the National Association of Realtors came out with existing home sales figures and it wasn’t very pretty.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9 percent to a seasonally adjusted annual rate of 4.82 million in January (lowest since last April at 4.75 million) from an upwardly-revised 5.07 million in December. Despite January’s decline, sales are higher by 3.2 percent than a year ago.

The market was expecting a decline of -0.8% to an annualized rate of 5.03M. The January report had good and bad included in it.

The bad is mostly in comparison to December. The seasonally adjusted number declined by -4.9% from December. The housing inventory increased by 0.5% to 1.87 million units and the unsold inventory is at 4.7 month supply from 4.4 month in December. Also, the sales-price was lower. It declined to $199,600 from $208,200 in December.

The good was in comparison to January 2014. The sales number were higher by 3.2% and price by 6.2%.

The chart of the existing home sales corroborates to it. It shows a uptrend for 2014, which was preceded by a downturn in 2013.

The translation of this for trading decision is not straight forward. Existing home sales report is a leading indicator of economic health because it triggers a wide-reaching ripple effect impacting home-building, remodeling, mortgage industries etc.

There is no strong correlation with the home-builders ETF (XHB) and the REIT ETF (VNQ), at least not recently. Both, XHB and VNQ, declined in 2007 and 2008 along with the declining sales numbers. Since then the relation is on-and-off.

The same is true with Home Depot and Lowes. These two stocks have been on a uptrend since bottoming in 2009. They plateaued – range bound – when the existing-home-sales numbers were declining in 2013. 

The realtor, ReMax (RMAX) has a more direct link with this report.

So does Realogy Holdings, Corp (RLGY).

The rental services companies also have a direct relation ship with the report, though a weak one. Here are three: Apartment Inv. & Mgmt (AIV), UDR Inc. (UD), and American Campus Community Inc. (ACC).