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posted on 21 July 2016

June 2016 Existing Home Headlines Say Sales Improved But The Data Says Otherwise.

Written by Steven Hansen

The headlines for existing home sales say "looking ahead, it's unclear if this current sales pace can further accelerate as record high stock prices, near-record low mortgage rates and solid job gains face off against a dearth of homes available for sale and lofty home prices that keep advancing.". Our analysis of the unadjusted data shows that home sales declined relative to last month, and the rolling averages declined. Sales price rate of growth accelerated.

Econintersect Analysis:

  • Unadjusted sales rate of growth decelerated 4.1 % month-over-month, up 1.9 % year-over-year - sales growth rate trend was statisically unchanged using the 3 month moving average.
  • Unadjusted price rate of growth accelerated 1.4 % month-over-month, up 4.2 % year-over-year - price growth rate trend declined using the 3 month moving average.
  • The homes for sale inventory declined this month, but remains historically low for Junes, and is down 5.8 % from inventory levels one year ago).

NAR reported:

  • Sales up 1.1 % month-over-month, up 3.0 % year-over-year.
  • Prices up 4.8 % year-over-year
  • The market expected annualized sales volumes of 5.400 to 5.560 million (consensus 5.570 million) vs the 5.57 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 the impressive four month streak of sales gains through June caps off a solid first half of 2016 for the housing market. "Existing sales rose again last month as more traditional buyers and fewer investors were able to close on a home despite many competitive areas with unrelenting supply and demand imbalances," he said. "Sustained job growth as well as this year's descent in mortgage rates is undoubtedly driving the appetite for home purchases."

Cautions Yun, "Looking ahead, it's unclear if this current sales pace can further accelerate as record high stock prices, near-record low mortgage rates and solid job gains face off against a dearth of homes available for sale and lofty home prices that keep advancing."

"The modest bump in June sales to first-time buyers can be attributed to mortgage rates near all-time lows and perhaps a hopeful indication that more affordable, lower-priced homes are beginning to make their way onto the market," adds Yun. "The odds of closing on a home are definitely higher right now for first-time buyers living in metro areas with tamer price growth and greater entry-level supply — particularly areas in the Midwest and parts of the South."

NAR President Tom Salomone says Realtors® are thrilled that the U.S. Senate last week unanimously voted to pass H.R. 3700, the Housing Opportunity Through Modernization Act. "At a time of historically low mortgage rates, this is a huge win for prospective first-time and low- to moderate-income buyers interested in purchasing a condo," he said. "Eliminating overly burdensome restrictions on condos will help more of these prospective buyers access financing and take advantage of this affordable entry point into homeownership."

Comparison of Home Price Indices - Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green line, left axis), NAR 3 month rolling average (red line,right axis)

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-2012.

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 does a more complete analysis of home prices with the Case-Shiller analysis. The graphs above on prices use a three month rolling average of the NAR data, and show a 3.6 % 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 June was $247,700, up 4.8 percent from June 2015 ($236,300). June's price increase marks the 52nd consecutive month of year-over-year gains and surpasses May's peak median sales price of $238,900.

According to the NAR, all-cash sales accounted for 22 % of sales this month.

The share of first-time buyers was 33 percent in June, which is up from 30 percent in May and a year ago and is the highest since July 2012 (34 percent). Through the first six months of the year, first-time buyers have represented an average of 31 percent of buyers; they were 30 percent in all of 2015.

All-cash sales were 22 percent of transactions in June, unchanged from both May and a year ago. Individual investors, who account for many cash sales, purchased 11 percent of homes in June (lowest since July 2009 at 9 percent), down from 13 percent in May and 12 percent a year ago. Sixty-four percent of investors paid cash in June.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory3 at the end of June dipped 0.9 percent to 2.12 million existing homes available for sale, and is now 5.8 percent lower than a year ago (2.25 million). Unsold inventory is at a 4.6-month supply at the current sales pace, which is down from 4.7 months in May.

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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