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posted on 20 December 2017

November 2017 Headline Existing Home Growth Improves

Written by Steven Hansen

The headline existing home sales growth improved with the authors saying "home sales in most of the country expanded at a tremendous clip in November". Our analysis of the unadjusted data somewhat disagrees with the headline data.

Analyst Opinion of Existing Home Sales

The rolling averages have been slowing in 2017 - but they again marginally accelerated this month. The rolling averages are in expansion.

Econintersect Analysis

  • Unadjusted sales rate of growth decelerated 0.7 % month-over-month, up 2.1 % year-over-year - sales growth rate trend accelerated using the 3 month moving average.
  • Unadjusted price rate of growth accelerated 0.4 % month-over-month, up 4.8 % year-over-year - price growth rate trend marginally accelerated using the 3 month moving average.
  • The homes for sale inventory significantly declined this month, remains historically low for Novembers, and is down 9.7 % from inventory levels one year ago).

NAR reported:

  • Sales up 5.6 % month-over-month, up 3.8 % year-over-year.
  • Prices up 5.8 % year-over-year
  • The market expected annualized sales volumes of 5.430 M to 5.700 M (consensus 5.520 million) vs the 5.81 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 home sales in most of the country expanded at a tremendous clip in November. "Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end," he said. "As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month. The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better."

"The anticipated rise in mortgage rates next year could further cut into affordability if these staggeringly low supply levels persist," said Yun. "Price appreciation is too fast in a lot of markets right now. The increase in homebuilder optimism must translate to significantly more new construction in 2018 to help ease these acute inventory shortages."

"The elevated presence of investors paying in cash continues to add a layer of frustration to the supply and affordability headwinds aspiring first-time buyers are experiencing," said Yun. "The healthy labor market and higher wage gains are expected to further strengthen buyer demand from young adults next year. Their prospects for becoming homeowners will only improve if more lower-priced and smaller-sized homes come onto the market."

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 price3 for all housing types in November was $248,000, up 5.8 percent from November 2016 ($234,400). November's price increase marks the 69th straight month of year-over-year gains.

According to the NAR;

First-time buyers were 29 percent of sales in November, which is down from 32 percent both in October and a year ago. NAR's 2017 Profile of Home Buyers and Sellers - released earlier this year5 - revealed that the annual share of first-time buyers was 34 percent.

Matching the highest share since May, all-cash sales were 22 percent of transactions in November, which is up from 20 percent in October and 21 percent a year ago. Individual investors, who account for many cash sales, purchased 14 percent of homes in November, up from 13 percent last month and unchanged from a year ago.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory4 at the end of November dropped 7.2 percent to 1.67 million existing homes available for sale, and is now 9.7 percent lower than a year ago (1.85 million) and has fallen year-over-year for 30 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace, which is down from 4.0 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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