econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 24 August 2016

July 2016 Existing Home Sales Not Good

Written by Steven Hansen

The headlines for existing home sales say "Slowed by frustratingly low inventory levels in many parts of the country, existing-home sales lost momentum in July and decreased year-over-year for the first time since November 2015". Our analysis of the unadjusted data is much worse than the headlines.

Econintersect Analysis:

  • Unadjusted sales rate of growth decelerated 8.5 % month-over-month, down 6.7 % year-over-year - sales growth rate trend was rapidly declining using the 3 month moving average.
  • Unadjusted price rate of growth accelerated 0.2 % month-over-month, up 3.6 % year-over-year - price growth rate trend was unchanged using the 3 month moving average.
  • The homes for sale inventory improved this month, but remains historically low for Julys, and is down 5.8 % from inventory levels one year ago).

NAR reported:

  • Sales down 3.2 % month-over-month, down 1.6 % year-over-year.
  • Prices up 5.3 % year-over-year
  • The market expected annualized sales volumes of 5.420 M to 5.650 million (consensus 5.520 million) vs the 5.39 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 existing sales fell off track in July after steadily climbing the last four months. "Severely restrained inventory and the tightening grip it's putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month," he said. "Realtors® are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows."

Adds Yun, "Furthermore, with new condo construction barely budging and currently making up only a small sliver of multi-family construction, sales suffered last month as condo buyers faced even stiffer supply constraints than those looking to purchase a single-family home."

"Although home sales are still expected to finish the year at their strongest pace since the downturn, thanks to a very strong spring, the housing market is undershooting its full potential because of inadequate existing inventory combined with new home construction failing to catch up with underlying demand," adds Yun. "As a result, sales in all regions are now flat or below a year ago and price growth isn't slowing to a healthier and sustainable pace."

NAR President Tom Salomone says in addition to affordability concerns, an issue seen earlier in the housing recovery may be reemerging. Realtors® are indicating that appraisal complications are appearing more frequently as the reason why a contract signing experienced a delayed settlement.

"Appraisal-related contract issues have notably risen over the past year and were the root cause of over a quarter of contract delays in the past three months 5," he said. "This is likely a combination of sharply growing home prices in some areas, the uptick in home sales this year and the strong refinance market overworking the already reduced number of practicing appraisers. Realtors® are carefully monitoring this trend, and some have already indicated they're extending closing dates on contracts to allow extra time to accommodate the possibility of appraisal-related delays."

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 July was $244,100, up 5.3 percent from July 2015 ($231,800). July's price increase marks the 53rd consecutive month of year-over-year gains.

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

The share of first-time buyers was 32 percent in July, which is below last month (33 percent) but up from 28 percent a year ago. First-time buyers represented 30 percent of sales in all of 2015.

All-cash sales were 21 percent of transactions in July, down from 22 percent in June, 23 percent a year ago and the lowest share since November 2009 (19 percent). Individual investors, who account for many cash sales, purchased 11 percent of homes in July, unchanged from June and down from 13 percent a year ago. Seventy percent of investors paid in cash in July.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of July inched 0.9 percent higher to 2.13 million existing homes available for sale, but is still 5.8 percent lower than a year ago (2.26 million) and has now declined year-over-year for 14 straight months. Unsold inventory is at a 4.7-month supply at the current sales pace, which is up from 4.5 months in June.

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).



>>>>> Scroll down to view and make comments <<<<<<



Permanent link to most recent post on this topic

Click here for Historical Releases Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.







Econintersect Economic Releases


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Energy and Falling Productivity
Reinhard Selten: Pioneering Analyst of Rationality and Human Behaviour
News Blog
Dangerous Ultra Pure Water
Job Employment Tenure Down
Mobile Payments Promise To Improve Financial Accessibility In Mexico
Aging Populations May Mean Lower Economic Growth
Urban Rebound Causes Large Shift In Lower Credit Borrowers To Seek The Outer Suburbs
Infographic Of The Day: How Oil Is Formed
Early Headlines: Japan Needs Fed Hike, Mexico Tanker Ablaze, 1.5C Limit Within 10 Yrs, Africa's Growth Problems, Did US Destroy Syria Truce?, Merkel: No Help For DB And More
Americans Wary Of Drone Delivery
Britain's Wealthiest Households
What Next In The South China Sea
The Dollar - Gold Relationship
Almost Half Of Rape Cases End Without A Conviction
People With 'Obesity Gene' Can Still Lose Weight
Investing Blog
The Week Ahead: How Will Election News Impact The Market?
How To Protect Your Money Against Negative Interest Rates
Opinion Blog
There's No Wall Between The Fed And Banco De Mexico
The Setting Sun: Japan Faces Monetary Exhaustion
Precious Metals Blog
War On Cash Turns To $20, $50, And $100 Bills
Live Markets
23Sep2016 Market Close: US Indexes Close Lower As Crude Prices Slip, Fed Lowers Economic Growth Prospects, Indicators Melting Into Bearish Territory
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved