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posted on 20 October 2017

September 2017 Headline Existing Home Growth Up?

Written by Steven Hansen

The headline existing home sales growth slowed with the authors saying "Sales activity likely would have been somewhat stronger if not for the fact that parts of Texas and South Florida - hit by Hurricanes Harvey and Irma - saw temporary, but notable declines". Our analysis of the unadjusted data strongly disagrees with the headline data.

Analyst Opinion of Existing Home Sales

The rolling averages have been slowing in 2017 - and they slowed again this month. You need to be on drugs (or an economist) to even begin to think sales this month were better than last month.

Econintersect Analysis

  • Unadjusted sales rate of growth decelerated 3.5 % month-over-month, down 4.3 % year-over-year - sales growth rate trend decelerated using the 3 month moving average.
  • Unadjusted price rate of growth decelerated 0.9 % month-over-month, up 3.5 % year-over-year - price growth rate trend decelerated using the 3 month moving average.
  • The homes for sale inventory grew insignificantly this month, remains historically low for Julys, and is down 6.4 % from inventory levels one year ago).

NAR reported:

  • Sales up 0.7 % month-over-month, down 1.5 % year-over-year.
  • Prices up 4.2 % year-over-year
  • The market expected annualized sales volumes of 5.100 M to 5.400 M (consensus 5.300 million) vs the 5,39 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 closings mustered a meager gain in September, but declined on an annual basis for the first time in over a year (July 2016; 2.2 percent). "Home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country," he said. "Realtors® this fall continue to say the primary impediments stifling sales growth are the same as they have been all year: not enough listings - especially at the lower end of the market - and fast-rising prices that are straining the budgets of prospective buyers."

Added Yun, "Sales activity likely would have been somewhat stronger if not for the fact that parts of Texas and South Florida - hit by Hurricanes Harvey and Irma - saw temporary, but notable declines."

"A continuation of last month's alleviating price growth, which was the slowest since last December (4.5 percent), would improve affordability conditions and be good news for the would-be buyers who have been held back by higher prices this year," said Yun.

"Nearly two-thirds of renters currently believe now is a good time to buy a home, but weakening affordability and few choices in their price range have made it really difficult for more aspiring first-time buyers to reach the market," said Yun.

President William E. Brown says Congress should keep in mind the barriers affecting prospective first-time buyers as they move forward with tax reform in the coming months.

"There's no way around the fact that any proposal that marginalizes the mortgage interest deduction and eliminates state and local tax deductions essentially disincentives homeownership and is a potential tax hike on millions of middle-class homeowners," said Brown. "Reforming the tax code is a worthy goal, but it should not lead to the middle class, who primarily build wealth through owning a home, footing the bill. Instead, Congress should be looking at ways to ensure more creditworthy prospective buyers are able to achieve homeownership and enjoy its personal and wealth-building benefits."

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 September was $245,100, up 4.2 percent from September 2016 ($235,200). September's price increase marks the 67th straight month of year-over-year gains.

According to the NAR;

First-time buyers were 29 percent of sales in September, which is down from 31 percent in August, 34 percent a year ago and matches the lowest share since September 2015. 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 20 percent of transactions in September, unchanged from August and down from 21 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in September (unchanged from last month and a year ago).

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of September rose 1.6 percent to 1.90 million existing homes available for sale, but still remains 6.4 percent lower than a year ago (2.03 million) and has fallen year-over-year for 28 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.5 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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