Written by Steven Hansen
The story on today’s existing home sales is the huge screw-ups in releasing this information by the National Association of Realtors (NAR). First, the data was tweeted early – maybe 25 minutes per my estimate – however Bloomberg claimed they had it 30 minutes early. Even CNBC provided the data in a ticker at that time – but did not discuss it.
Then the website went down at the time the data was released (10:00 ET) – and finally the site was up at 10:50.
The headline quote in this data release is the continuing notation that there are not enough homes for sale.
“The total supply of housing inventory appears to be balanced in historic terms, but there are notable shortages in the lower price ranges which are limiting opportunities for first-time buyers,” he said. “The low price ranges also are popular with investors, so entry-level buyers are at a disadvantage because many investors are making all-cash offers.”
- Sales Up 2.3% month-over-month, Up 10.4% year-over-year
- Prices Up 9.4% year-over-year same ( up 7.9% in June 2012)
- The market expected annualized sales volumes of 4.3 to 4.55 million (vs the 4.47 million reported)
- Sales up 6.2% month-over-month, Up 11.4% year-over-year
- Prices Up 1.6% month-over-month, Up 1.6% year-over-year
Overall, this is the twelfth 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 housing affordability conditions are very good. “Mortgage interest rates have been at record lows this year while rents have been rising at faster rates. Combined, these factors are helping to unleash a pent-up demand,” he said. “However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”
NAR is asking the government to expeditiously release the foreclosed properties it owns in inventory-constrained markets. Given population and demographic demand, Yun said existing-home sales could be in a normal range of 5 to 5.5 million if all conditions were optimal. “Sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that,” he said.
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said pricing is the primary factor in determining how long homes stay on the market. “Correctly priced homes, regardless of price range, are selling quickly these days,” he said. Fully one-third of homes purchased in July were on the market for less than a month, and only 21 percent were on the market for six months or longer.
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 shows home prices up 6.4% year-over-year. Even so, homes today are more affordable according to the NAR’s Housing Affordability Index.
Unadjusted Home Affordability Index
This affordability index measures the degree to which a typical family can afford the monthly mortgage payments on a typical home.
Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite housing affordability index (COMPHAI) of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the COMPHAI then shows that this family is more able to afford the median priced home.
The home price situation according to the NAR:
The national median existing-home price for all housing types was $187,300 in July, up 9.4 percent from a year ago. The last time there were five back-to-back monthly price increases from a year earlier was in January to May of 2006. The July gain was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 24 percent of July sales (12 percent were foreclosures and 12 percent were short sales), down from 25 percent in June and 29 percent in July 2011. Foreclosures sold for an average discount of 17 percent below market value in July, while short sales were discounted 15 percent.
According to the NAR, all-cash sales accounted for 27% of transactions.
First-time buyers accounted for 34 percent of purchasers in July, up from 32 percent in June; they were also 32 percent in July 2011. Under normal conditions, entry-level buyers account for four out of 10 purchases.
All-cash sales slipped to 27 percent of transactions in July from 29 percent in June; they were 29 percent in July 2011. Investors, who account for the bulk of cash sales, purchased 16 percent of homes in July, down from 19 percent in June; they were 18 percent in July 2011.
Inventories fell this month.
Total housing inventory at the end July increased 1.3 percent to 2.40 million existing homes available for sale, which represents a 6.4-month supply4 at the current sales pace, down from a 6.5-month supply in June. Listed inventory is 23.8 percent below a year ago when there was a 9.3-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).