posted on 21 May 2015
Written by Steven Hansen
The headlines for existing home sales claim "April failed to keep pace with the robust gain seen in March". Our analysis of the unadjusted data shows that home sales are normally uneven - and that the rolling averages did improve. Because of the noise, it is very difficult for the headline seasonal adjusted data to accurately present the situation. Overall, existing home sales are improving and in a upward trending channel.
Unadjusted Year-over-Year Change in Existing Home Sales Volumes (blue line) - 3 Month Rolling Average (red line)
The graph below presents unadjusted home sales volumes.
Unadjusted Monthly Home Sales Volumes
Here are the headline words from the NAR analysts:
Comparison of Home Price Indices - Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green lin.
To remove the seasonality in home prices, here is a year-over-year graph which demonstrates a general improvement in home price rate of growth since mid-2013.
Comparison of Home Price Indices on a Year-over-Year Basis - Case-Shiller 3 Month Average (blue bars), CoreLogic (yellow bars) and National Association of Realtors three month average (red bars)
Econintersect will do a more complete analysis of home prices when the Case-Shiller data is released. The graphs above on prices use a three month rolling average of the NAR data, and show a 6.3% year-over-year gain.
Homes today are still affordable according to the NAR's Housing Affordability Index.
Unadjusted Home Affordability Index
This affordability index measures the degree to which a typical family can afford the monthly mortgage payments on a typical home.
The home price situation according to the NAR:
According to the NAR, all-cash sales accounted for 24% of sales this month.
Unadjusted Inventories are moderately below the levels of one year ago.
Unadjusted Total Housing Inventory
Caveats on Use of NAR Existing Home Sales Data
The National Association of Realtors (NAR) is a trade organization. Their analysis tends to understate the bad, and overstate the good. However, the raw (and unadjusted) data is released which allows a complete unbiased analysis. Econintersect analyzes only using the raw data. Also note the National Association of Realtors (NAR) new methodology now has moderate back revision to the data - so it is best to look at trends, and not get too excited about each month's release.
The NAR re-benchmarked their data in their November 2011 existing home sales data release reducing their recent reported home sales volumes by an average of 15%. The NAR stated benchmarking will be an annual process, and the 2010 data will need to be benchmarked again next year.
Existing home sales is one area the government does not report data - and it is easy to assume that an organization whose purpose is to paint the housing industry in a good light would inflate their data. However, Econintersect is assuming in its analysis that the NAR numbers are correct.
The NAR's home price data has been questioned by others also. However, Econintersectanalysis shows a very good home price correlation to Case-Shiller, CoreLogic's HPI, and LPS, especially when three-month moving averages are used - as shown in the graph earlier in this article.
Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change. This is the best of the bad options available to determine month-over-month trends - as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).
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