Written by Steven Hansen
The headlines for existing home sales say that sales were weaker in September, but this analysis is worst than the headlines from the National Association of Realtors.
- Sales down 8.8% month-over-month, Up 2.1% year-over-year
- Prices up 2.8% month-over-month, Up 9.0% year-over-year
- Sales Down 1.7% month-over-month, Up 11.0% year-over-year
- Prices Up 11.3% year-over-year same ( up 9.5% in August 2012)
- The market expected annualized sales volumes of 4.7 to 4.9 million (vs the —million reported)
Overall, this is the fifteenth month in a row of improving year-over-year home sales volumes (unadjusted 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. This is the lowest year-over-year improvement in 2012.
Unadjusted Year-over-Year Change in Existing Home Sales Volumes
The graph below presents unadjusted home sales volumes – my takeaway is that September’s growth is not very impressive.
Unadjusted Monthly Home Sales Volumes
Here are the headline words from the NAR analysts:
Lawrence Yun , NAR chief economist, said the market trend is up. “Despite occasional month-to-month setbacks, we’re experiencing a genuine recovery,” he said. “More people are attempting to buy homes than are able to qualify for mortgages, and recent price increases are not deterring buyer interest. Rather, inventory shortages are limiting sales, notably in parts of the West.”
“The shrinkage in housing supply is supporting ongoing price growth, a pattern that could accelerate unless home builders robustly ramp up production,” Yun said.
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said some buyers who could easily afford a mortgage can’t assume they’ll get one. “Home buyers need to be more focused on the mortgage process in the current environment where lenders and banking regulators are being risk averse,” he said. “Shopping for competitive mortgage terms is a good idea, but it may be more important to find a bank that is willing to work with you given your credit history. Realtors can often recommend lenders that may have more reasonable underwriting standards.”
The graph below does not use seasonally adjusted data in displaying home prices. As the first reporter of home prices. The graph below is not year-over-year change, and the down-tick in home prices is seasonal.
Comparison of Home Price Indices – Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green line, left axis) and National Association of Realtors three month average (red line, right axis)
To remove the seasonality in home prices, here is a year-over-year graph which demonstrates a continuing strengthening in home prices.
Comparison of Home Price Indices – Case-Shiller 3 Month Average (blue bars), CoreLogic (yellow bars) and National Association of Realtors three month average (red bars)
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 9.0% in September using NAR year-over-year unadjusted data. The graphs above on prices use a three month rolling average of the NAR data, and show a 7.5% gain.
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 $183,900 in September, up 11.3 percent from a year ago. The last time there were seven consecutive monthly year-over-year increases was from November 2005 to May 2006.
Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 24 percent of September sales (13 percent were foreclosures and 11 percent were short sales), up from 22 percent in August; they were 30 percent in September 2011. Foreclosures sold for an average discount of 21 percent below market value in August, while short sales were discounted 13 percent.
According to the NAR, all-cash sales accounted for dropped significantly from 31% to 28% this month.
First-time buyers accounted for 32 percent of purchasers in September, compared with 31 percent in August; they were 32 percent in September 2011.
All-cash sales were at 28 percent of transactions in September, up from 27 percent in August; they were 30 percent in September 2011. Investors, who account for most cash sales, purchased 18 percent of homes in September, unchanged from August; they were 19 percent in September 2011.
Inventories are on a flat trend line in 2012.
Total housing inventory at the end September fell 3.3 percent to 2.32 million existing homes available for sale, which represents a 5.9-month supply at the current sales pace, down from a 6.0-month supply in August. Listed inventory is 20.0 percent below a year ago when there was an 8.1-month supply.
The median time on market was 70 days in September, unchanged from August, but down 30.7 percent from 101 days in September 2011. Thirty-two percent of homes sold in September were on the market for less than a month, while 19 percent were on the market for six months or longer.
Unadjusted Total Housing Inventory
Although Econintersect sees a likely housing bottom, sales in September are very weak. One would normally expect a growing demand (not a weakening one if the market had really bottomed).
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).