Existing Home Sales: Is NAR Data Correct for January?

The National Association of Realtors (NAR) completely destroyed its December 2011 existing homes sales data and analysis with their January release today – and now they are saying their January 2012 data is better.  At this point there is no doubt sales volumes are increasing – but the improvement originally conveyed in December makes the January “improvement” a step backwards.

Home sales prices too were screwed up in December – at the time it seemed strange prices were shown as increasing.   This is what we had said in our December analysis:  

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.

It is unusual for the NAR to significantly revise previous months data – hopefully this will not be a new phenomenon with the new NAR methodology.  Here is an idea of the change:

NAR initially reported in December 2011:

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

NAR is now reporting December 2011:

  • Sales Down 0.5% month-over-month, Down 1.6% year-over-year
  • Existing Home Prices Down 1.0% month-over-month, Down 3.9% year-over-year

Pretty much, it makes last month’s analysis worthless as there were major changes in the raw data also – and I hate to think the same event will occur this month.  But here we go with the January 2011 data:

NAR reported in January 2012:

  • Sales Up 4.3% month-over-month, Up 0.7% year-over-year
  • Prices Down 4.6% month-over-month, Down 2.0% year-over-year

Econintersect Analysis for January 2012 data:

  • Sales Up 2.9% month-over-month, Up 4.0% year-over-year
  • Prices Up 3.4% month-over-month, Down 2.2% year-over-year

Overall, this is the seventh month in a row of increasing home sales volumes (Econintersect analysis of raw data) year-over-year, but the 4 month trend is becoming less good. In December 2011, volumes were up only 1.5% year-over-year, the lowest number in the past six months.

Here are the words from the NAR:

Lawrence Yun, NAR chief economist, said strong gains in contract activity in recent months show buyers are responding to very favorable market conditions. “The uptrend in home sales is in line with all of the underlying fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents.”

Total housing inventory at the end of January fell 0.4 percent to 2.31 million existing homes available for sale, which represents a 6.1-month supply2 at the current sales pace, down from a 6.4-month supply in December.

“The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,” Yun said. “Foreclosure sales are moving swiftly with ready home buyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.”

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

Forty-seven percent of NAR members report that contracts settled on time in January; 21 percent had delays and 33 percent experienced contract failures. Contract cancellations are unchanged from December but were only 9 percent in January 2011; they are caused largely by declined mortgage applications and failures in loan underwriting from appraisals coming in below the negotiated price.

The graph below does not use seasonally adjusted data in displaying home prices.

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 price3 for all housing types was $154,700 in January, down 2.0 percent from January 2011. Distressed homes – foreclosures and short sales which sell at deep discounts – accounted for 35 percent of January sales (22 percent were foreclosures and 13 percent were short sales), up from 32 percent in December; they were 37 percent in January 2011.

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

All-cash sales were unchanged at 31 percent in January; they were 32 percent in January 2011. Investors account for the bulk of cash transactions.

Investors purchased 23 percent of homes in January, up from 21 percent in December; they were 23 percent in January 2011. First-time buyers rose to 33 percent of transactions in January from 31 percent in December; they were 29 percent in January 2011.

Inventories continued to fall.

Total unsold listed inventory has trended down from a record 4.04 million in July 2007, and is 20.6 percent below a year ago.

Just looking at only inventories, you could argue the existing home markets are improving. Looking at only prices, this month you would argue there is more downside coming. Overall we can only hope the NAR got the data right this month.

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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