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posted on 24 August 2017

July 2017 Headline Existing Home Growth Slows Again

Written by Steven Hansen

The headline existing home sales growth slowed with the authors saying "Contract activity has mostly trended downward since February and ultimately put a large dent on closings last month". 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 0.3 % month-over-month, up 0.0 % year-over-year - sales growth rate trend decelerated using the 3 month moving average.
  • Unadjusted price rate of growth accelerated 0.2 % 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 Julys, and is down 9.0 % from inventory levels one year ago).

NAR reported:

  • Sales down 1.3 % month-over-month, up 2.1 % year-over-year.
  • Prices up 6.2 % year-over-year
  • The market expected annualized sales volumes of 5.490 M to 5.650 M (consensus 5.570 million) vs the 5.51 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 second half of the year got off on a somewhat sour note as existing sales in July inched backward. "Buyer interest in most of the country has held up strongly this summer and homes are selling fast, but the negative effect of not enough inventory to choose from and its pressure on overall affordability put the brakes on what should've been a higher sales pace," he said. "Contract activity has mostly trended downward since February and ultimately put a large dent on closings last month."

"Home prices are still rising above incomes and way too fast in many markets," said Yun. "Realtors® continue to say prospective buyers are frustrated by how quickly prices are rising for the minimal selection of homes that fit buyers' budget and wish list."

"July was the fourth consecutive month that the typical listing went under contract in under one month," said Yun. "This speaks to the significant pent-up demand for buying rather than any perceived loss of interest. The frustrating inability for new home construction to pick up means inadequate supply levels will keep markets competitive heading into the fall."

According to President William E. Brown there's a prominent misconception - especially among non-homeowners - that a down payment of at least 20 percent is needed to buy a home. "Every month this year, roughly 60 percent of buyers who financed their purchase with a mortgage made a down payment that was 6 percent or less5," he said. "Potential buyers with solid employment and manageable levels of debt will find that there are mortgage options available. Talk to a lender to find out what you qualify for based on your savings and let that guide you as you begin your home search with a Realtor®."

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 July was $258,300, up 6.2 percent from July 2016 ($243,200). July's price increase marks the 65th straight month of year-over-year gains.

According to the NAR;

First-time buyers were 33 percent of sales in July, which is up from 32 percent both in June and a year ago. NAR's 2016 Profile of Home Buyers and Sellers - released in late 20164 - revealed that the annual share of first-time buyers was 35 percent.

All-cash sales were 19 percent of transactions in July, up from 18 percent in June but down from 21 percent a year ago. Individual investors, who account for many cash sales, purchased 13 percent of homes in July, unchanged from June and down from 11 percent a year ago. Distressed sales6 - foreclosures and short sales - were 5 percent of sales in July, up from 4 percent in June and unchanged from a year ago. Four percent of July sales were foreclosures and 1 percent were short sales.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of July declined 1.0 percent to 1.92 million existing homes available for sale, and is now 9.0 percent lower than a year ago (2.11 million) and has fallen year-over-year for 26 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.8 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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