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Economic & Housing Weekly Note

Home Sales Fall in the Wake of Economic and Coronavirus-Related Uncertainty

April 24, 2020

Key Takeaways:

  • Durable goods orders fell 14.4 percent in March, the largest decline since August 2014. The decrease was driven by orders for nondefense aircraft and parts, which fell by nearly 300 percent over the month as Boeing customers cancelled 150 orders for MAX 737 jets. Core capital goods (nondefense excluding aircraft) shipments, an input for business equipment spending, fell slightly. However, the forward-looking indicator, core capital goods orders, edged up during the month.
  • Existing home sales fell 8.5 percent in March to a seasonally adjusted annualized rate (SAAR) of 5.27 million units in March, according to the National Association of REALTORS®. This was the largest monthly decline since November 2015 and the lowest annualized level in 11 months. Despite the weak March number, existing home sales rose a modest 1.2 percent over the first quarter. Inventories, however, continued to decrease on a year-over-year basis, falling for the tenth consecutive month. While the months’ supply of homes rose four-tenths from February’s reading, at the current sales pace the existing home supply would last only 3.4 months, the lowest March reading ever.
  • New single-family home sales fell 15.4 percent in March, the largest monthly decline since July 2013, to a SAAR of 627,000, the lowest level in 10 months. Sales in the prior two months were revised downward by 47,000 units, putting the first quarter average at 715,000 sales, a slight increase from the prior quarter. The months’ supply jumped by 1.2 to 6.4 months, the largest increase since July 2013.
  • Mortgage applications fell 0.3 percent for the week ending April 17, according to the Mortgage Bankers Association. Purchase applications rose by 2.1 percent, the first increase in six weeks. Refinance applications continued to trend downward after spiking to an expansion-high at the end of March.
  • The FHFA Purchase-Only House Price Index, reported on a seasonally adjusted basis, rose 0.7 percent in February, and 5.7 percent from a year ago, an acceleration of three-tenths from January, and the fastest annual pace of growth in a year.
Forecast Impact

Core capital goods orders held up relatively well in March despite recent supply chain disruptions and shutdowns caused by the coronavirus, and suggests that first quarter business equipment spending may be higher than we expected. Unsurprisingly, both new and existing home sales fell in March. Though the magnitude of the decline in new home sales was in line with our expectations, the sharp downward revisions to sales in the first two months of the year pushed the quarterly number below our forecast. This lower starting point for the second quarter will likely mean a decrease in our new home sales forecast. The available supply of homes and the demand for homes has dwindled recently in response to social distancing protocols and state shutdowns. Economic uncertainty and infection-avoidance behaviors are likely to continue into the second quarter and weigh further on home sales. While the first increase in purchase applications in six weeks is a welcome change, it would take a sustained stabilization/increase in purchase applications to suggest that the decline in home sales has troughed, though the rise in virtual home showings may offer some support.

Home Sales Fall Sharply as Coronavirus-Related Shutdowns Weigh on Sentiment


 New Orders of Nondefense Aircraft Go Negative for the First Time Since December 2009

Details on Key Takeaways and Other Releases

  • Durable goods orders fell 14.4 percent in March, according to the Census Bureau. New orders of motor vehicles and parts dropped 18.4 percent, the largest decline since June 1998. Excluding transportation, new durable goods orders fell just 0.2 percent. Inventories of durable goods rose 0.6 percent, the largest increase since September 2018. Shipments of durable goods fell 4.5 percent, the largest decline since January 2009.
  • Existing home sales fell 8.5 percent in March to a SAAR of 5.27 million, according to the National Association of REALTORS®. Sales fell in every region. Sales of existing single-family homes dropped 8.1 percent to 4.74 million SAAR units, and condo/co-op sales decreased 11.7 percent to 530,000 units. The decline in condo/co-op sales was the largest in over nine years, pushing the level down to the lowest since mid-2012. The median sales price, which is not adjusted for the mix of sales, rose 8.0 percent year over year. On a quarterly basis, total existing home sales rose 1.2 percent to 5.48 million SAAR units, the highest quarterly average in two years.
  • New single-family home fell 15.4 percent in March to a SAAR of 627,000, according to the Census Bureau. Sales fell in every region. The median sales price (not seasonally adjusted) rose 3.5 percent year over year. From a year ago, new home sales fell 10.3 percent and the number of new homes for sale fell 0.6 percent, the seventh consecutive month of declining inventory. On a quarterly basis, new home sales rose 0.7 percent to a SAAR of 715,000 in the first quarter, the highest quarterly average since Q3 2007.

Economic and Strategic Research Group 
April 24, 2020

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views, including assumptions about the duration and magnitude of shutdowns and social distancing, could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.