The National Association of Realtors (NAR) says existing home sales “declined in July from an upwardly revised June pace but are notably higher than a year ago” in July 2011.
Econintersect review of the data suggests that the seasonal adjustment factors used by the NAR are adulterated by government incentives over the last few years. This month the NAR announce a MASSIVE jump in their seasonal adjusted data as a result of the same distortions of recent historical data.
Despite protests to the contrary by the NAR, existing home sales are moving in the patterns of past years where the government was not interfering in marketplace – namely 2007. It appears based on non-stimulus data, sales are what would have been expected.
Lawrence Yun, NAR chief economist, said there is a tug and pull on the market. “Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” he said. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”
The NAR press release continues to hit on cancellations causing “poor” numbers.
Contract failures – cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price – were unchanged in July, reported by 16 percent of NAR members. In addition, 9 percent of Realtors® report a contract was delayed in the past three months due to low appraisals, and another 13 percent said a contract was renegotiated to a lower sales price because an appraisal was below the initially agreed price.
NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said an unacceptably high number of potential home buyers are unable to complete transactions. “For both mortgage credit and home appraisals, there’s been a parallel pendulum swing from very loose standards which led to the housing boom, to unnecessarily restrictive practices as an overreaction to the housing correction,” he said.
“Beyond the tight credit problems, all appraisals must be done by valuators with local expertise and using reasonable comparisons – it doesn’t make sense to consistently see so many valuations coming in below negotiated prices, often below replacement construction costs,” Phipps said.
In an environment following a large price correction, Phipps said a price negotiated between a buyer and seller would appear to be a fair market price. “Banks frequently request numerous sales comparisons, well beyond the customary three comps used in the past, with little consideration that some of those properties may be discounted foreclosures used to valuate a traditional home in good condition,” he said. “To a great extent, banks are exerting influence on appraised valuations with negative impacts for both home sales and prices.”
Maybe there were a bunch of cancellations – but the correlation to pending home sales does say this argument is bogus as existing home sales came in at the levels that the NAR pending home sales index would suggest.
Based on the unadjusted sales in July, there is an 8.0 months supply of homes, up from 7.2 months supply in June.
As seen on the above graph, visible inventory levels are the lowest seen recently for Julys. There seem to be little problem with rising visible inventory levels. The big uncertainties here center on various shadow inventory issues, as discussed by Keith Jurow (here and here) and John Lounsbury.
Econintersect will analyze home prices which are undergoing their seasonal boost when the Case-Shiller home prices are released. The situation according to the NAR:
The national median existing-home price2 for all housing types was $174,000 in July, down 4.4 percent from July 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 29 percent of sales in July, compared with 30 percent in June and 32 percent in July 2010.
The unadjusted data is confirming the YoY prices have declined – usually the seasonal decline begins in August. Further bits from the NAR press release:
Total housing inventory at the end of July fell 1.7 percent to 3.65 million existing homes available for sale, which represents a 9.4-month supply4 at the current sales pace, up from a 9.2-month supply in June.
All-cash sales accounted for 29 percent of transactions in July, unchanged from June; they were 30 percent in June 2010; investors account for the bulk of cash purchases.
First-time buyers purchased 32 percent of homes in July, up from 31 percent in June; they were 38 percent in July 2010. Investors accounted for 18 percent of purchase activity in July compared with 19 percent in June and 19 percent in July 2010. The balance of sales was to repeat buyers, which were a 50 percent market share in July, unchanged from June.
The bottom line here is that the data is on a whole a little worse than expected because of the price declines. Overall the existing homes market remains in a recession – and there are no signs yet of recovery.
Building Permits Contract in July 2011 by Steven Hansen
A Chill Is Being Felt in Housing by Scott Sambucci
June 2011 Pending Home Sales Index Up – Is It Enough? by Steven Hansen
Case-Shiller: Seasonal Home Price Increase Underway in May 2011 by Steven Hansen
Existing Home Sales In June 2011 Much Better than Headlines Suggest by Steven Hansen
New Housing Construction Industry Now In Recovery in June 2011 by Steven Hansen
Housing Inventory: Hard and Soft Shadows by John Lounsbury
CoreLogic Sees Short Sales Growing 25% in 2011 by CoreLogic
Flipping Mad Over Fraud Flips by Frank McKenna
“Bottoming” New Housing Data Is A Reflection of the Economy by Steven Hansen
Real Time Home Price Index Shows Housing Price Strength by Scott Sambucci
Strategic Defaults: A Bad Situation That Could Get Worse by Keith Jurow