Written by Steven Hansen
Econintersect continues to believe we are at or near the bottom of the existing home sales depression, yet the data continues to be at the low end of improvement channel seen recently for sales volumes.
The three month rolling average of home prices did improve significantly likely due to the continuing downtrend in the number of distressed properties being sold.
NAR reported in April 2012:
- Sales Up 3.4% month-over-month, Up 10.0% year-over-year
- Prices Up 10.1% year-over-year from Up 3.1% in March 2012
- The market expected annualized sales volumes of 4.65 to 4.80 million (vs the 4.62 reported)
- Sales Up 2.9% month-over-month, Up 6.7% year-over-year
- Prices Up 5.0% month-over-month, Up 7.4% year-over-year
Overall, this is the tenth month in a row of improving year-over-year home sales volumes (Econintersect analysis of raw data). Since mid 2011, home sales have been positively growing year-over-year. However, the March improvement was unexpected weak, and the improvement this month leaves home sales still near the bottom of the improvement channel started in mid-2010 as shown on the graph below.
The graph below presents unadjusted home sales volumes – my takeaway is that a solid but unspectacular “improvement” cycle is underway.
Here are the words from the NAR:
Lawrence Yun, NAR chief economist, said the housing recovery is underway. “It is no longer just the investors who are taking advantage of high affordability conditions. A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices,” he said. “The general downtrend in both listed and shadow inventory has shifted from a buyers’ market to one that is much more balanced, but in some areas it has become a seller’s market.”
“A diminishing share of foreclosed property sales is helping home values. Moreover, an acute shortage of inventory in certain markets is leading to multiple biddings and escalating price conditions,” Yun said. He notes some areas with tight supply include the Washington, D.C., area; Miami; Naples, Fla.; North Dakota; Phoenix; Orange County, Calif.; and Seattle. “We expect stronger price increases in most of these areas.”
The graph below does not use seasonally adjusted data in displaying home prices. As the first reporter of home prices, notice the uptick in the NAR’s home prices.
Econintersect will do a more complete analysis of home prices when the Case-Shiller data is released. Please note that Econintersect analysis only shows home prices up 6.7% year-over-year. The situation according to the NAR:
The national median existing-home price for all housing types jumped 10.1 percent to $177,400 in April from a year ago; the March price showed an upwardly revised 3.1 percent annual improvement. “This is the first time we’ve had back-to-back price increases from a year earlier since June and July of 2010 when the gains were less than one percent,” Yun said. “For the year we’re looking for a modest overall price gain of 1.0 to 2.0 percent, with stronger improvement in 2013.”
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 28 percent of April sales (17 percent were foreclosures and 11 percent were short sales), down from 29 percent in March and 37 percent in April 2011. Foreclosures sold for an average discount of 21 percent below market value in April, while short sales were discounted 14 percent.
According to the NAR, all-cash sales accounted for 29% of transactions.
All-cash sales fell to 29 percent of transactions in April from 32 percent in March; they were 31 percent in April 2011. Investors, who account for the bulk of cash sales, purchased 20 percent of homes in April, compared with 21 percent in March and 20 percent in April 2011.
Inventories fell this month.
Total housing inventory at the end of April rose 9.5 percent to 2.54 million existing homes available for sale, a seasonal increase which represents a 6.6-month supply2 at the current sales pace, up from a 6.2-month supply in March. Listed inventory is 20.6 percent below a year ago when there was a 9.1-month supply; the record for unsold inventory was 4.04 million in July 2007.
Although Econintersect sees a likely housing bottom, sales in March can only be described as strange with volumes “less good”. One would expect a growing demand (not a weakening one at the bottom).
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. Also note 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.
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).