📊 Existing Home Sales

To: Institutional Clients

From: Global Economics Strategy Team

Date: October 2026

Subject: Existing Home Sales – Housing Market Signals a Cyclical Trough

1. Executive Summary

The latest Existing Home Sales print (3.99M units) indicates a fragile attempt at a rebound following a sharp contraction in August. While the September figure represents a 2.5% month-on-month increase from the 3.93M low, the broader trend remains heavily depressed, with the current level sitting in the 15.4th percentile of the 10-year range.

The data signals a housing market that is struggling to find a floor. The lack of sustained momentum suggests that the "lock-in effect" or affordability constraints continue to outweigh any marginal improvements in financing conditions. From a policy perspective, this persistent weakness in the residential sector provides the Federal Reserve with additional headroom to maintain a dovish bias, as housing is clearly acting as a drag on aggregate demand.

2. Five Main Views

• Fragile Recovery: The move from 3.93M (Aug) to 3.99M (Sept) is a modest bounce rather than a trend reversal, remaining well below the 4.27M peak seen in December 2025.
• Deep Cyclical Discount: With a Z-score of -1.06$\sigma$, sales are significantly below the long-term mean, confirming that the housing market is operating in a state of chronic underperformance.
• Volatility Over Trend: The data shows high intra-year volatility (ranging from 3.93M to 4.27M), suggesting that sales are reacting to short-term noise rather than a fundamental structural recovery.
• Demand Suppression: The current print is barely above the 10-year floor (3.93M), indicating that buyer demand remains heavily suppressed.
• Negative Contribution to GDP: The sustained low volume of existing home sales suggests a continued negative or neutral contribution to residential fixed investment.

3. Macro Characterization

(i) Growth: The housing sector is currently a headwind to GDP growth. The inability of sales to break back above the 4.1M threshold suggests that the wealth effect from home equity is stagnant and residential consumption is muted.

(ii) Labor Market: While home sales are a lagging indicator, the persistent weakness suggests a lack of confidence in long-term income trajectory among prospective buyers, or a mismatch between wage growth and mortgage affordability.

(iii) Inflation: The slump in existing home sales is disinflationary. Low transaction volumes typically lead to a cooling of home price growth and a reduction in ancillary spending (furniture, renovations), supporting a downward trajectory for core goods inflation.

4. Cyclical Alignment

Based on the 10-year Z-score of -1.06$\sigma$ and a percentile ranking of 15.4%, the current regime is classified as a mid-cycle pause with bearish lean. Because the Z-score does not exceed the $|2.0|$ threshold, we are not seeing a systemic "regime shift" or a total collapse, but rather a prolonged period of stagnation. The data does not support a "late-cycle overheating" thesis; instead, it reflects a market that has been successfully cooled—perhaps too much—by the previous tightening cycle.

5. Policy Outlook

Forecast: Dovish Hold / Potential Rate Cut

The balance of risks has shifted toward undershooting growth targets in the residential sector. Given that existing home sales are hovering near 10-year lows, the Fed is likely to view the housing market as a primary justification for easing. We expect the Fed to maintain a dovish posture, with a high probability of a 25bps cut in the next meeting to lower the cost of borrowing and unlock the frozen inventory of existing homes. The risk of inflation re-accelerating is currently outweighed by the risk of a prolonged housing slump becoming a broader economic drag.