Understanding Existing Home Sales
Table of Contents
Introduction to Existing Home Sales
Existing Home Sales is a monthly economic indicator published by the National Association of Realtors (NAR) that measures the number of previously owned homes sold in the United States. This report is a key measure of housing market health and consumer confidence.
Existing home sales represent approximately 90% of total home sales in the United States, making this report significantly more comprehensive than the new home sales data.
The report is typically released around the 25th of each month, covering transactions from the prior month. It provides crucial insights into the health of the housing market, which is a major component of the US economy and a significant driver of consumer wealth.
Housing represents the largest asset for most American households. Changes in home values significantly impact consumer wealth, spending behavior, and overall economic confidence.
Key Components of the Report
The Existing Home Sales report contains several important data points that traders should analyze beyond the headline sales figure.
Primary Metrics
- Total Sales: The annualized number of existing homes sold, seasonally adjusted
- Median Price: The middle price point of all homes sold—50% sold above, 50% below
- Months' Supply: How long it would take to sell current inventory at the present sales pace
- Days on Market: Average time homes spend listed before selling
Regional Breakdowns
The NAR provides sales data broken down by four US Census regions:
- Northeast: Often most sensitive to mortgage rate changes due to higher home values
- Midwest: Generally more affordable markets with stable demand
- South: Largest sales volume, often leading national trends
- West: Most volatile region, highly sensitive to tech sector employment and mortgage rates
Watch the months' supply figure closely. A balanced market typically has 5-6 months of supply. Below 5 months suggests a seller's market; above 6 months indicates a buyer's market.
Economic Significance
Existing home sales carry substantial economic weight for several interconnected reasons that traders must understand.
Wealth Effect
Rising home prices create a wealth effect where homeowners feel wealthier and spend more freely. This relationship makes housing data crucial for consumer spending forecasts:
- Home equity represents significant household wealth
- Rising values enable home equity borrowing
- Confident homeowners increase discretionary spending
- Housing wealth influences retirement planning and major purchases
Economic Multiplier
Each home sale triggers substantial economic activity:
- Direct spending: Real estate commissions, legal fees, moving costs
- Home improvement: Renovations, repairs, upgrades by new owners
- Durable goods: Furniture, appliances, and home furnishing purchases
- Financial services: Mortgage originations, title insurance, inspections
The NAR estimates that each home sale contributes approximately $88,000 to the economy on average, considering all related spending and economic activity.
Interest Rate Sensitivity
Housing is one of the most interest-rate-sensitive sectors of the economy:
- Mortgage rates directly impact affordability
- Rising rates reduce buyer purchasing power
- Rate changes affect refinancing activity
- Fed policy transmission is visible in housing data
Impact on Forex Markets
While not typically a high-volatility release, existing home sales can move currency markets under certain conditions.
USD Impact Scenarios
USD Bullish: Strong sales + rising prices suggest economic resilience, supporting Fed's ability to maintain higher rates
USD Bearish: Weak sales + falling prices indicate economic weakness, potentially accelerating Fed rate cuts
Context Matters
The market's reaction depends heavily on the current economic narrative:
- Recession fears: Housing weakness amplifies concerns and weighs on USD
- Soft landing hopes: Stable housing supports the narrative and USD
- Inflation concerns: Rising home prices may be seen as inflationary
- Rate cut expectations: Weak housing data accelerates cut pricing
The report's impact is often felt most strongly when it contradicts the prevailing market narrative or confirms emerging trend changes.
Trading Strategies
Trading existing home sales requires understanding its role within the broader economic calendar and current market themes.
Pre-Release Analysis
- Check mortgage rate trends: Recent rate movements provide context for the expected reading
- Review building permits data: Leading indicator that may preview housing trends
- Assess consumer confidence: Home-buying intentions correlate with confidence levels
- Monitor regional news: Weather, migration patterns, and local factors affect sales
Trading Approaches
Trend Confirmation: Use existing home sales to confirm or challenge the prevailing economic trend. Strong data during soft landing narratives reinforces USD support.
Divergence Trading: When housing data diverges from other indicators, it may signal a turning point. For example, weak housing amid otherwise strong data could be an early warning.
Cross-Market Analysis: Housing data affects housing stocks, REITs, and mortgage-related securities. Watch these markets for confirmation of FX moves.
The existing home sales release typically has lower volatility than major releases like NFP or CPI. Consider reducing position sizes and widening stops to account for the typically muted reaction.
Risk Management
Given the moderate impact of this release, appropriate risk management includes:
- Smaller position sizes relative to high-impact releases
- Wider stops to avoid noise-driven exits
- Focus on confirmation rather than immediate reaction trading
- Consider the data in context of weekly/monthly housing trends
Key Takeaways
- Existing home sales represent ~90% of US home sales, making it a crucial housing indicator
- Released around the 25th of each month by the National Association of Realtors
- Key metrics include total sales, median price, months' supply, and days on market
- Housing creates significant wealth effects impacting consumer spending
- Each home sale generates approximately $88,000 in economic activity
- Highly sensitive to mortgage rates and Fed policy expectations
- USD typically strengthens on strong data and weakens on disappointing readings
- Market reaction depends heavily on current economic narrative
- Use as confirmation tool rather than primary trading trigger
- Consider position sizing appropriate for moderate-impact releases
