US Existing home sales start fourth quarter on a weaker footing

Coming on the heels of a large gain in September, sales of existing homes declined by 3.4% m/m in October, falling to 5.36 million units (annualized). October's print was below the consensus forecast, which called for sales to moderate to 5.40 million units.

Losses were concentrated in the single-family segment, where sales decreased by 3.7% m/m. Sales of condos and co-ops also edged lower, falling by 1.6% m/m. October marked the fourth month that the sales of condos and co-ops failed to advance, with sales of these properties down 1.6% on a year-over-year basis.

The median sales price was up by 5.8% from a year ago - a slight deceleration from the last month's reading of 6.0% y/y. Prices for single family homes were up 6.4% y/y, while prices for condo and co-op prices advanced more slowly (+1.6% y/y).

First-time home buyers accounted for 31% of the transactions in October, which is 2pp higher than in the previous month and a year ago.

The inventory of unsold homes decreased 2.3 percent to 2.14 million in October. Still, measured in months' supply, inventory edged up to 4.8 months from 4.7 a month earlier. The number of days a house spent on the market rose to 57 - up from 49 days in September, but down from 63 days a year ago.

In terms of the regional breakdown, sales were weak across the board. Declines were concentrated in the West (-9% m/m) and South (-3.1% m/m) regions. Sales were also slightly softer in the Midwest (-0.8% m/m), and remained flat in the Northeast.  

Today's report is disappointing, pointing to a modest slowdown in activity as we approach the end of the year. Weaker performance was not entirely unexpected. After rising in September, MBA purchase applications retreated by 7.5% m/m in October and pending home sales have also slipped. However, despite the pullback in October, it is important to keep eyes on the trend, which is one of improvement.

Year-over-year, existing home sales and purchase applications are up by 3.8% and 24%, respectively.  Boosted by ongoing improvements in the labor market, improving household formation rates and rising rents, we expect that the resale market will continue to grind higher in the coming months. Mortgage costs are also expected to remain low. While the Fed is expected to begin to normalize monetary policy in December, the path of future rate increases is expected to be very gradual.

"The pace of future improvement in sales will likely be slow, as activity continues to be held back by tight inventory of existing houses for sale. Supply remains particularly meager at the low-end of price range, which adds to the list of challenges faced by the first-time homebuyers", notes TD Economics.