US Existing Home Sales Posted a Slightly Larger than Expected Increase in March

Location: Toronto
Author: RBC Financial Group Economics Department
Date: Thursday, April 21, 2011

Existing home sales in the US rose 3.7% to an annualized pace of 5.10 million units in March, retracing a portion of the previous month’s larger than expected 8.9% decline to 4.92 million (initially reported as 4.88 million). The increase in the pace of sales was slightly larger than expected as market expectations were for sales to increase to 5.00 million in the month. The pace of decline in home prices once again accelerated, with the median existing home price falling 5.9% on a year-over-year basis in March, up from 5.2% in February to represent the largest annual decline since October 2009.

The increase in existing home sales in March reflected a solid increase in sales of single-family homes, with this component rising 4.0% in the month to 4.45 million annualized units. Sales of condos and co-ops also increased, although by a more modest 1.6% to 650,000 annualized units.

The pace of existing home sales increased in the South (8.2%), the Northeast (3.9%), and the Midwest (1.0%) while the South posted a modest decline (-0.8%).

The annual pace of decline in the median sales price of existing homes accelerated to 5.9% from 5.2% in February as distressed sales (which typically sell at a steep discount) rose to a 40% market share in March from 39% of total sales in previous month and 35% in March 2010. In terms of inventories (which do not include houses in foreclosure or those already foreclosed that have not yet been listed), the absolute number of homes available for sale increased 1.5% to 3.55 million units.

The increased pace of sales in the month exceeded this rise in inventories, resulting in the months’ supply of unsold homes on the market edging lower to 8.4 in March from 8.5 in the previous month.

Today’s reported pickup in existing home sales in March provides further evidence that a recovery in the housing market is indeed beginning to take shape. The pace of existing home sales has now increased for two consecutive quarters, rising by a non-annualized 8.3% in the first quarter of 2011 following the 13.8% gain seen in the fourth quarter of 2010, and stands 23.3% above the cyclical low seen in the third quarter of 2010. While a considerable supply overhang persists due to foreclosures continuing to inundate the market, the combination of increasing sales and low levels of new homes being brought onto the market, as evidenced by yesterday’s housing starts report, suggests that market imbalances are in the process of correcting. The correction, however, is likely going to be a very gradual process as the modest pace of job growth will likely keep housing demand fairly muted. We continue to expect that residential investment will make only a very small contribution to economic growth during the next two years.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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