Existing Home Sales Volumes Growth Slows in May 2012

Written by Steven Hansen

Econintersect continues to see the recovery in existing home sales volumes, but the recovery trend is weaker.  The National Association of Realtors (NAR) is blaming the slowdown on a supply shortage – not a shortage of demand.

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 May 2012:

  • Sales Down 1.5% month-over-month, Up 9.6% year-over-year
  • Prices Up 7.9% year-over-year from Up 10.1% in April 2012
  • The market expected annualized sales volumes of 4.50 to 4.56 million (vs the 4.55 million reported)

Econintersect Analysis:

  • Sales Up 6.9% month-over-month, Up 13.6% year-over-year
  • Prices Up 0.9% month-over-month, Up 6.4% year-over-year

Overall, this is the eleventh 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 strong rate of growth seen since mid-2010 appears to have moderated 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 inventory shortages in certain areas have been building all year. “The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring,” he said. “Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier.”

There are broad-based shortages of inventory in the lower price ranges in much of the country except the Northeast, and in the West supply is extremely tight in all price ranges except for the upper end. “Realtors® in Western states have been calling for an expedited process to get additional foreclosed properties onto the market because they have more buyers than available property,” Yun added. Widespread inventory shortages also are found in much of Florida.

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 6.4% year-over-year. The situation according to the NAR:

The national median existing-home price for all housing types rose 7.9 percent to $182,600 in May from a year ago, the third consecutive month of year over year price gains. The last time there were three back-to-back price increases from the same month a year earlier was from March to May of 2006. “Some of the price gain results from a shrinking share distressed homes in the sales mix,” Yun explained.

Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 25 percent of May sales (15 percent were foreclosures and 10 percent were short sales), down from 28 percent in April and 31 percent in May 2011. Foreclosures sold for an average discount of 19 percent below market value in May, while short sales were discounted 14 percent.

According to the NAR, all-cash sales accounted for 28% of transactions.

All-cash sales slipped to 28 percent of transactions in May from 29 percent in April; they were 30 percent in May 2011. Investors, who account for the bulk of cash sales, purchased 17 percent of homes in May, down from 20 percent in April and 19 percent in May 2011. “These figures reflect a modest increase in traditional repeat home buyers in May,” Yun said.

First-time buyers accounted for 34 percent of purchasers in May, compared with 35 percent in April and 36 percent in May 2011.

Inventories fell this month.

Total housing inventory at the end of May slipped 0.4 percent to 2.49 million existing homes available for sale, which represents a 6.6-month supply2 at the current sales pace; there was a 6.5-month supply in April. Listed inventory is 20.4 percent below a year ago when there was a 9.1-month supply. Unsold inventory has trended down from a record 4.04 million in July 2007; supplies reached a cyclical peak of 12.1 months in July 2010.

Although Econintersect sees a likely housing bottom, sales in May 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).

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