Written by Steven Hansen
Existing home sales volumes appears to have hit a wall – the lack of cheap homes for investors. This has caused declining growth in sales volumes, declining inventories, and an increasing average home sales prices due to lower volumes of cheap homes being sold. This is summarized by the following paragraph in the National Association of Realtors (NAR) data release.
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 25 percent of June sales (13 percent were foreclosures and 12 percent were short sales), unchanged from May but down from 30 percent in June 2011. Foreclosures sold for an average discount of 18 percent below market value in June, while short sales were discounted 15 percent. “The distressed portion of the market will further diminish because the number of seriously delinquent mortgages has been falling.
- Sales Down 5.4% month-over-month, Up 4.5% year-over-year
- Prices Up 7.9% year-over-year same as 7.9% in May 2012
- The market expected annualized sales volumes of 4.65 million (vs the 4.37 million reported)
- Sales down 9.6% month-over-month, Up 5.0% year-over-year
- Prices Up 0.1% month-over-month, Up 5.7% 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.
Unadjusted Year-over-Year Change in Existing Home Sales Volumes
The graph below presents unadjusted home sales volumes – my takeaway is that a solid but growing less good “improvement” cycle is underway.
Unadjusted Monthly Home Sales Volumes
Here are the headline words from the NAR analysts:
Lawrence Yun, NAR chief economist, said the bigger story is lower inventory and the recovery in home prices. “Despite the frictions related to obtaining mortgages, buyer interest remains solid. But inventory continues to shrink and that is limiting buying opportunities. This, in turn, is pushing up home prices in many markets,” he said. “The price improvement also results from fewer distressed homes in the sales mix.”
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said there’s been a steady growth in buyer interest. “Buyer traffic has virtually doubled from last fall, while seller traffic has risen only modestly,” he said. “The very favorable market conditions are helping to unleash a pent-up demand, which is why housing supplies have tightened and are supporting growth in home prices. Nonetheless, incorrectly priced homes will not attract buyers.”
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.
Comparison of Home Price Indices – Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (yellow line, left axis) and National Association of Realtors (red line, right axis)
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. However, looking at the NAR’s home affordability index – home prices are still high historically.
Unadjusted Home Affordability Index
The situation according to the NAR:
The national median existing-home price for all housing types was $189,400 in June, up 7.9 percent from a year ago. This marks four back-to-back monthly price increases from a year earlier, which last occurred in February to May of 2006. June’s gain was the strongest since February 2006 when the median price rose 8.7 percent from a year prior.
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 25 percent of June sales (13 percent were foreclosures and 12 percent were short sales), unchanged from May but down from 30 percent in June 2011. Foreclosures sold for an average discount of 18 percent below market value in June, while short sales were discounted 15 percent. “The distressed portion of the market will further diminish because the number of seriously delinquent mortgages has been falling,” said Yun.
According to the NAR, all-cash sales accounted for 29% of transactions.
First-time buyers accounted for 32 percent of purchasers in June, compared with 34 percent in May and 31 percent in June 2011. “A healthy market share of first-time buyers would be about 40 percent, so these figures show that tight inventory in the lower price ranges, along with unnecessarily tight credit standards, are holding back entry level activity,” Yun said.
All-cash sales edged up to 29 percent of transactions in June from 28 percent in May; they were 29 percent in June 2011. Investors, who account for the bulk of cash sales, purchased 19 percent of homes in June, up from 17 percent in May; they were 19 percent in June 2011.
Inventories fell this month.
Total housing inventory at the end June fell another 3.2 percent to 2.39 million existing homes available for sale, which represents a 6.6-month supply4 at the current sales pace, up from a 6.4-month supply in May. Listed inventory is 24.4 percent below a year ago when there was a 9.1-month supply.
Unadjusted Total Housing Inventory
Although Econintersect sees a likely housing bottom, sales in May and June can only be described as strange with volumes “less good”. One would normally 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).