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posted on 24 July 2017

June 2017 Headline Existing Home Growth Slows

Written by Steven Hansen

The headline existing home sales growth slowed with the authors saying "Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget". Our analysis of the unadjusted data agrees.

Analyst Opinion of Existing Home Sales

The rolling averages have been slowing in 2017 - so it is easy to agree with the NAR that this will not be excellent for home sales this year. We also agree with the NAR that price growth is straining budgets for buyers - and we wonder how the home affordability index is saying otherwise.

Econintersect Analysis

  • Unadjusted sales rate of growth decelerated 2.4 % month-over-month, up 3.3 % year-over-year - sales growth rate trend decelerated using the 3 month moving average.
  • Unadjusted price rate of growth accelerated 0.1 % month-over-month, up 4.9 % year-over-year - price growth rate trend decelerated using the 3 month moving average.
  • The homes for sale inventory contracted this month, remains historically low for Junes, and is down 7.1 % from inventory levels one year ago).

NAR reported:

  • Sales down 1.8 % month-over-month, up 0.7 % year-over-year.
  • Prices up 6.5 % year-over-year
  • The market expected annualized sales volumes of 5.500 M to 5.690 M (consensus 5.580 million) vs the 5.52 million reported.

The graph below presents unadjusted home sales volumes.

Here are the headline words from the NAR analysts:

Lawrence Yun, NAR chief economist, says the previous three-month lull in contract activity translated to a pullback in existing sales in June. "Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget," he said. "The demand for buying a home is as strong as it has been since before the Great Recession. Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages inflicting many markets are keeping a large segment of would-be buyers on the sidelines."

Added Yun, "The good news is that sales are still running slightly above last year's pace despite these persistent market challenges."

"It's shaping up to be another year of below average sales to first-time buyers despite a healthy economy that continues to create jobs," said Yun. "Worsening supply and affordability conditions in many markets have unfortunately put a temporary hold on many aspiring buyers' dreams of owning a home this year."

"Prospective buyers who postponed their home search this spring because of limited inventory may have better luck as the summer winds down," said President William E. Brown, a Realtor® from Alamo, California. "The pool of buyers this time of year typically begins to shrink as households with children have likely closed on a home before school starts. Inventory remains extremely tight, but patience may pay off in coming months for those looking to buy."

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.

Econintersect does a more complete analysis of home prices with the Case-Shiller analysis.

The home price situation according to the NAR:

The median existing-home price for all housing types in June was $263,800, up 6.5 percent from June 2016 ($247,600). Last month's median sales price surpasses May as the new peak and is the 64th straight month of year-over-year gains.

According to the NAR;

First-time buyers were 32 percent of sales in June, which is down from 33 percent both in May and a year ago. NAR's 2016 Profile of Home Buyers and Sellers - released in late 2016 - revealed that the annual share of first-time buyers was 35 percent.

All-cash sales were 18 percent of transactions in June, down from 22 percent both in May and a year ago, and the lowest since June 2009 (13 percent). Individual investors, who account for many cash sales, purchased 13 percent of homes in June, down from 16 percent in May and unchanged from a year ago. Fifty-six percent of investors paid in cash in June.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of June declined 0.5 percent to 1.96 million existing homes available for sale, and is now 7.1 percent lower than a year ago (2.11 million) and has fallen year-over-year for 25 consecutive months. Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.6 months a year ago.

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 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.

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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