Econintersect‘s analysis of existing home sales volumes in October 2011 shows a seasonally adjusted drop of 2.9% month-over-month but still remains in a strong up trend. Year-over-year growth of home sales is 11.7% – a good improvement.
Econintersect review of the home sales prices show they are down 2.5% month-over-month, and 4.6% year-over-year. In October 2010, home prices were also down 2.5% month-over-month, but were UP 1.6% year-over-year.
Overall, October’s existing home sales, while remaining relatively good, are still indicating the housing bubble has not been fully deflated – and may have a way to go until the market stabilizes.
Here are the words from the NAR:
Lawrence Yun, NAR chief economist, said the market has been fairly steady but at a lower than desired level. “Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales such as job creation, rising rents and high affordability conditions. Many people who are attempting to buy homes are thwarted in the process,” he said.
The NAR press release hit on mortgage availability and again on cancellations causing “poor” numbers.
“A higher rate of contract failures has held back a sales recovery. Contract failures2 reported by NAR members jumped to 33 percent in October from 18 percent in September, and were only 8 percent a year ago, so we should be seeing stronger sales,” Yun added.
Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses. “Other recent factors include disruption in the National Flood Insurance Program, and lower loan limits for conventional mortgages, which paradoxically force some of the most creditworthy consumers to pay unnecessarily higher interest rates,” Yun said.
Regardless of cancellation and mortgage availability, home sales volumes remain in an uptrend.
Home prices continue to fall. The drop this month was not unusual for Octobers.
Econintersect will do a more complete analysis of home prices when the Case-Shiller data is released. The situation according to the NAR:
The national median existing-home price4 for all housing types was $162,500 in October, which is 4.7 percent below October 2010. Distressed homes – foreclosures and short sales typically sold at deep discounts – slipped to 28 percent of sales in October from 30 percent in September (17 percent were foreclosures and 11 percent were short sales); they were 34 percent in October 2010.
According to the NAR, all-cash sales accounted for 29% of transactions in October.
Investors purchased 18 percent of homes in October, compared with 19 percent in September and 19 percent in October 2010. First-time buyers accounted for 34 percent of transactions in October, up from 32 percent in September; they were 32 percent in October 2010.
Inventories continued to fall.
An ongoing positive trend is a steady decline in the number of homes on the market. Total housing inventory at the end of October fell 2.2 percent to 3.33 million existing homes available for sale, which represents an 8.0-month supply3 at the current sales pace, down from an 8.3-month supply in September. Inventories have been trending gradually down since setting a record of 4.58 million in July 2008.
“In some areas we’re hearing about shortages of foreclosure inventory in the lower price ranges with multiple bidding on the more desirable properties,” Yun said. “Realtors® in such areas are calling for a faster process of getting foreclosure inventory into the market because they have ready buyers. In addition, extending credit to responsible investors would help to absorb inventory at an even faster pace, which would go a long way toward restoring market balance.”
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 only using the raw data.
The NAR has admitted there is an error in their reporting of home sales volumes. According to the Wall Street Journal:
Lawrence Yun, chief economist at NAR, wasn’t specific about whether and by how much the revisions could reduce reported sales, and he raised the possibility that the CoreLogic estimates have understated the number of home sales. “This is a very important issue, and we are looking at it carefully right now,” Mr. Yun said.
Existing home sales is one area the government does not report data – and it is easy to assume that an organization whose purpose is to paint the housing industry in a good light would inflate their data. Econintersect is assuming in its analysis that the NAR numbers are correct.
The NAR’s home price data has been questioned also. Econintersect analysis shows a very good home price correlation to Case-Shiller, CoreLogic’s HPI, and Altos Research.