Housing is one of the most interest-rate-sensitive parts of any economy, and the US is no exception. Each month, the existing home sales report gives a snapshot of how many previously owned homes changed hands. For traders, it is a simple way to see how higher or lower mortgage rates are feeding through to real decisions by households.
What the report measures
Existing home sales count completed purchases of previously owned homes, including single-family houses, townhouses, condominiums and co-operative flats. The data is published monthly by the National Association of Realtors. The headline figure is expressed as a seasonally adjusted annual rate, which shows how many homes would be sold over a year if that month’s pace continued.
The report also includes the median sale price, the number of homes listed for sale and the months of supply, which is how long it would take to sell the current stock of homes at the current pace.
Existing versus new homes
Existing home sales make up the large majority of US housing transactions. New home sales, published separately, cover newly built homes and are more closely tied to construction activity. Housing starts and building permits, covered in our guide to housing starts, show how much new building is under way.
Because existing home sales are counted when a deal closes, they reflect decisions made a month or two earlier. Pending home sales, which count signed contracts, can give an earlier signal.
Why mortgage rates matter so much
Most US homebuyers use a long-term fixed-rate mortgage, and those rates tend to move with longer-term Treasury yields. When yields rise, monthly payments on a new mortgage rise too, which can price buyers out of the market. Existing homeowners who locked in low rates years ago may also be reluctant to move, because selling would mean taking on a new mortgage at a higher rate. That can reduce the number of homes listed for sale and keep transactions low.
How markets react
Existing home sales are not usually the biggest market mover on the calendar, but they add to the picture of how the economy is coping with interest rates. A sharp fall in sales can support the view that tighter monetary policy is cooling demand. Strong sales can suggest the economy is holding up better than expected.
Housing data also matters for specific sectors, such as homebuilders, mortgage lenders, banks and companies that sell furniture or home improvement products. Prices matter too, because housing costs feed into inflation measures over time.
Reading the figures sensibly
Monthly housing data can be noisy and is often revised. It helps to look at the trend over several months rather than a single report, and to compare the median price with a year earlier. The months of supply figure is a useful guide to balance: a low figure suggests a tight market that supports prices, while a rising figure suggests buyers have more choice.
It is also worth reading housing data alongside the bond market. If Treasury yields are rising, as discussed in our guide to the two-year Treasury yield, housing activity may struggle to recover even if other parts of the economy are strong.
The bottom line
Existing home sales show how American households are responding to the cost of borrowing. They are not a headline data point like inflation or jobs, but they help explain how interest rates are affecting the real economy. If you want to understand how you combine smaller data points into a bigger view, take the free Samuel & Co Trading trader assessment.
