Existing Home Sales are Up in February 2012 Contrary to Headlines

Written by Steven Hansen

Warning: 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.

Here is an idea of the change to last month’s data release:

NAR initially 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

NAR is now reporting January 2012:

  • Sales up 5.7% month-over-month, Up 2.0% year-over-year
  • Existing Home Prices Down 4.7% month-over-month, Down 2.0% year-over-year

At least this time the data had a positive revision.   Now starting with the February data:

NAR reported in February 2012:

  • Sales Down 0.9% month-over-month, Up 8.8% year-over-year
  • Prices Up 1.3% month-over-month, Up o.3% year-over-year

Econintersect Analysis for February 2012 data:

  • Sales Up 2.4% month-over-month, Up 13.4% year-over-year
  • Prices Up 2.8% month-over-month, Up 0.4% year-over-year

Overall, this is the eighth month in a row of increasing home sales volumes (Econintersect analysis of raw data) year-over-year.  Since mid 2011, home sales have been positively growing year-over-year.

Here are the words from the NAR:

Lawrence Yun, NAR chief economist, said underlying factors are much better compared to one year ago. “The market is trending up unevenly, with record high consumer buying power and sustained job gains giving buyers the confidence they need to get into the market,” he said. “Although relatively unusual, there will be rising demand for both rental space and homeownership this year. The great suppression in household formation during the past four years was unsustainable, and a pent-up demand could burst forth from the improving economy.””

“Falling visible and shadow inventory, combined with a dearth of new-home and apartment construction during the past three years, assure that rents will continue to rise, with likely home price increases in 2012,” Yun said.

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

Fifty-one percent of NAR members report that contracts settled on time in February, 18 percent had delays and 31 percent experienced contract failures; the cancellation rate was 33 percent in January and 9 percent in February 2011. Contract failures are commonly caused by declined mortgage applications and failures in loan underwriting from appraisals coming in below the negotiated price.

“Many buyers are staying in the market after experiencing a contract failure and making an offer on another property, showing their determination to take advantage of the favorable conditions, but the cancellations are contributing to an uneven sales pattern,” Yun said.

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 price2 for all housing types was $156,600 in February, up 0.3 percent from February 2011. Distressed homes3 – foreclosures and short sales sold at deep discounts – accounted for 34 percent of February sales (20 percent were foreclosures and 14 percent were short sales), down from 35 percent in January and 39 percent in February 2011.

“The bottom line is investors and first-time buyers are competing for bargain-priced properties in much of the country, with home prices showing signs of stabilizing in many areas,” Veissi said. “People realize that homeownership is an investment in their future. Given an apparent over-correction in most areas, over the long term home prices have nowhere to go but up.”

According to the NAR, all-cash sales accounted for 33% of transactions in February.

All-cash sales rose to 33 percent of transactions in February from 31 percent in January; they were 33 percent in February 2011. Investors account for the bulk of cash transactions.

Investors purchased 23 percent of homes in February, unchanged from January; they were 20 percent in February 2011. First-time buyers accounted for 32 percent of transactions in February, down from 33 percent in January and 34 percent in February 2011.

Inventories rose this month.

Total housing inventory at the end of February rose 4.3 percent to 2.43 million existing homes available for sale, which represents a 6.4-month supply at the current sales pace, up from a 6.0-month supply in January. Even so, unsold listed inventory has trended down from a record 4.04 million in July 2007, and is 19.3 percent below a year ago.

With volumes starting to increase, we seem to be very close to a real housing bottom.  A bottom to Econintersect is where home prices stabilize.  Foreclosures are weighing on home prices.

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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