Existing Home Sales: Mixed Picture in December 2011

The National Association of Realtors (NAR) reported December 2011 existing home data demonstrates a market in recovery.   It may be true (Econintersect hopes it is true), but it depends which portion of the data you view to come to this conclusion.  The data in December is mixed, but overall is positive.

NAR reported:

  • Existing Homes Sales Up 5.0% month-over-month, Up 3.6% year-over-year
  • Existing Home Prices Up 2.3% month-over-month, Down 2.5% year-over-year

Econintersect Analysis:

  • Existing Homes Sales Down 8.8% month-over-month, Up 1.5% year-over-year
  • Existing Home Prices Up 0.8% month-over-month, Down 2.7% year-over-year

However the 2011 annual total housing numbers (the above information compared December 2011 data) do not show a massive change from which you could project a recovery.

Overall, this is the sixth month in a row of increasing home sales volumes year-over-year, but the 4 month trend is less good improvements.  In December 2011, volumes are up only 1.5% year-over-year.

Here are the words from the NAR:

Lawrence Yun, NAR chief economist, said these are early signs of what may be a sustained recovery. “The pattern of home sales in recent months demonstrates a market in recovery,” he said. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”

…… “The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future,” Yun said.

The NAR press release hit again on cancellations causing “poor” numbers.

Contract failures were reported by 33 percent of NAR members in December, unchanged from November; they were 9 percent in December 2010. Although closed sales are holding up better than this finding would suggest, contract cancellations are caused largely by declined mortgage applications and failures in loan underwriting from appraised values coming in below the negotiated price.

The good news in the data is an improvement in home prices.  Even though the NAR’s home prices actually increased month-over-month, Econintersect uses a 3 month rolling average to evaluate home prices to smooth random fluctuations.  Even so, the 3 month average only declined 0.1% month-over-month, and shows a very unusual home price strength for December compared to the same month in prior years.  The graph below does not use seasonally adjusted data.

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 price for all housing types was $164,500 in December, which is 2.5 percent below December 2010. Distressed homes – foreclosures and short sales – accounted for 32 percent of sales in December (19 percent were foreclosures and 13 percent were short sales), up from 29 percent in November; they were 36 percent in December 2010.

According to the NAR, all-cash sales accounted for 31% of transactions in December.

All-cash sales accounted for 31 percent of purchases in December, up from 28 percent in November and 29 percent in December 2010. Investors account for the bulk of cash transactions.

Investors purchased 21 percent of homes in December, up from 19 percent in November and 20 percent in December 2010. First-time buyers fell to 31 percent of transactions in December from 35 percent in November; they were 33 percent in December 2010.

Inventories continued to fall.

Total housing inventory at the end of December dropped 9.2 percent to 2.38 million existing homes available for sale, which represents a 6.2-month supply2 at the current sales pace, down from a 7.2-month supply in November.

Available inventory has trended down since setting a record of 4.04 million in July 2007, and is at the lowest level since March 2005 when there were 2.30 million homes on the market.

Just looking at only inventories, you could argue the existing home markets are improving.   Looking at only prices, you could likewise argue the market is improving because of the surprising strength this month.  But the fly in the ointment is the anemic sales volumes.  Hopefully there will be an upswing in early 2012 which will dispel this worry.

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 re-benchmarked their data in their November 2011 existing home sales data release reducing their recent reported home sales volumes by an average of 15%.  The NAR stated benchmarking will be an annual process, and the 2010 data will need to be benchmarked again next year.

Also released today were periodic benchmark revisions with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners. Although rebenchmarking resulted in lower adjustments to several years of home sales data, the month-to-month characterization of market conditions did not change. There are no changes to home prices or month’s supply.

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. However, Econintersect is assuming in its analysis that the NAR numbers are correct.

The NAR’s home price data has been questioned by others also. However, Econintersect analysis shows a very good home price correlation to Case-Shiller, CoreLogic’s HPI, and LPS, especially when three-month moving averages are used – as shown in the graph earlier in this article.

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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