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posted on 23 November 2015

October 2015 Existing Home Sales Headlines Say Sales Have Fallen.

Written by Steven Hansen

The headlines for existing home sales say " a sales cooldown in October was likely given the pullback in contract signings the last couple of months". Our analysis of the unadjusted data shows that home sales declined.

Econintersect Analysis:

  • Unadjusted sales rate of growth decelerated 7.1 % month-over-month, up 0.9 % year-over-year - sales growth rate trend declined using the 3 month moving average.
  • Unadjusted price rate of growth decelerated 0.5 % month-over-month, up 3.4 % year-over-year - price growth rate trend is modestly improved using the 3 month moving average.
  • The homes for sale inventory declined again this month, remains historically low for Octobers, and is down 4.5 % from inventory levels one year ago).

NAR reported:

  • Sales down 3.4 % month-over-month, up 3.9 % year-over-year.
  • Prices up 5.8 % year-over-year
  • The market expected annualized sales volumes of 5.250 to 5.600 million (consensus 5.40 million) vs the --- million reported.

Unadjusted Year-over-Year Change in Existing Home Sales Volumes (blue line) - 3 Month Rolling Average (red line)

z existing1.PNG

The graph below presents unadjusted home sales volumes.

Unadjusted Monthly Home Sales Volumes

z existing2.PNG

Here are the headline words from the NAR analysts:

Lawrence Yun, NAR chief economist, says a sales cooldown in October was likely given the pullback in contract signings the last couple of months. "New and existing-home supply has struggled to improve so far this fall, leading to few choices for buyers and no easement of the ongoing affordability concerns still prevalent in some markets," he said. "Furthermore, the mixed signals of slowing economic growth and volatility in the financial markets slightly tempered demand and contributed to the decreasing pace of sales."

Adds Yun, "As long as solid job creation continues, a gradual easing of credit standards even with moderately higher mortgage rates should support steady demand and sales continuing to rise above a year ago."

"All-cash and investor sales are still somewhat elevated historically despite the diminishing number of distressed properties," adds Yun. "With supply already meager at the lower-end of the price range, competition from these buyers only adds to the list of obstacles in the path for first-time buyers trying to reach the market."

NAR President Tom Salomone says Realtors® overwhelmingly applaud the Federal Housing Administration's announced changes to begin simplifying some of its overly-restrictive condo certification procedures. "With first-time buyers held back in several markets, affordable FHA financing needs to be a viable option in helping them achieve homeownership," he said. "The new changes to FHA's condo policy, including improving owner-occupancy requirements, streamlining the recertification process, and addressing restrictions on eligible property insurance for condos will go a long way in improving the ability for these young households to purchase a condo."

Comparison of Home Price Indices - Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green lin.

z existing3.PNG

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)

z existing5.PNG

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 3.4 % year-over-year gain.

Homes today are still relatively 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.

Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite housing affordability index (COMPHAI) of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the COMPHAI then shows that this family is more able to afford the median priced home.

The home price situation according to the NAR:

The median existing-home price for all housing types in October was $219,600, which is 5.8 percent above October 2014 ($207,500). October's price increase marks the 44th consecutive month of year-over-year gains.

According to the NAR, all-cash sales accounted for 24 % of sales this month.

The percent share of first-time buyers increased to 31 percent in October, up from 29 percent both in September and a year ago. NAR's annual Profile of Home Buyers and Sellers - released earlier this month - revealed that the annual share of first-time buyers fell to its second-lowest level since the survey began in 1981.

All-cash sales were 24 percent of transactions in October (unchanged from September) and are down from 27 percent a year ago. Individual investors, who account for many cash sales, purchased 13 percent of homes in October, unchanged from September but down from 15 percent a year ago. Sixty-two percent of investors paid cash in October.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of October decreased 2.3 percent to 2.14 million existing homes available for sale, and is now 4.5 percent lower than a year ago (2.24 million). Unsold inventory is at a 4.8-month supply at the current sales pace, up from 4.7 months in September.

Unadjusted Total Housing Inventory

z existing4.png

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.

Also released today were periodic benchmark revisions with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners. Although rebenchmarking resulted in lower adjustments to several years of home sales data, the month-to-month characterization of market conditions did not change. There are no changes to home prices or month's supply.

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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