Written by Steven Hansen
The headlines for existing home sales say that sales were marginally weaker in December, but our analysis shows sales a lot weaker – but this is a comparison to relatively strong October and November sales.
- Sales down 8.0% month-over-month, Up 6.9% year-over-year
- Prices up 2.1% month-over-month, Up 10.4% year-over-year
- Sales growth was about average for 2012, while the sales price jump was unusual for Decembers.
- Sales down 1.0% month-over-month, Up 12.8% year-over-year
- Prices Up 11.5% year-over-year same ( up 10.1% in November 2012)
- The market expected annualized sales volumes of 5.1 million (vs the 4.94 million reported)
Overall, this is the eighteenth 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. However, the previous months of October and November were the best year-over-year growth of 2012.
Unadjusted Year-over-Year Change in Existing Home Sales Volumes
The graph below presents unadjusted home sales volumes – my takeaway is that December’s growth was impressive – but just not as good as Octobers or Novembers.
Unadjusted Monthly Home Sales Volumes
Here are the headline words from the NAR analysts:
Lawrence Yun , NAR chief economist, said pent-up demand is sustaining the market. “Record low mortgage interest rates clearly are helping many home buyers, but tight inventory and restrictive mortgage underwriting standards are limiting sales,” he said. “The number of potential buyers who stayed on the sidelines accumulated during the recession, but they started entering the market early last year as their financial ability and confidence steadily grew, along with home prices. Likely job creation and household formation will continue to fuel that growth. Both sales and prices will again be higher in 2013.”
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said affordability conditions will be fairly stable in the near term. “Although mortgage interest rates should gradually rise as the year progresses, they’re expected to stay below 4 percent during the first half of the year, meaning qualified buyers generally can stay well within their means,” he said.
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 – but the tick up in December is unusual.
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 on a Year-over-Year Basis – 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 9.1% year-over-year in November using NAR year-over-year unadjusted data. The graphs above on prices use a three month rolling average of the NAR data, and show an 8.2% 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 $180,800 in December, which is 11.5 percent above December 2011. This is the 10th consecutive month of year-over-year price gains, which last occurred from August 2005 to May 2006, and is the strongest increase since November 2005 when it jumped 12.9 percent.
For all of 2012, the preliminary median existing-home price was $176,600, up 6.3 percent from $166,100 in 2011, and was the strongest annual price gain since 2005 when the median price rose 12.4 percent.
Distressed homes – foreclosures and short sales – accounted for 24 percent of December sales (12 percent were foreclosures and 12 percent were short sales), up from 22 percent in November but below the 32 percent share in December 2011. Foreclosures sold for an average discount of 17 percent below market value in December, while short sales were discounted 16 percent.
According to the NAR, all-cash sales accounted for 29% of sales this month.
First-time buyers accounted for 30 percent of purchases in December, unchanged from November; they were 31 percent in December 2011.
All-cash sales were at 29 percent of transactions in December, compared with 30 percent in November and 31 percent in December 2011. Investors, who account for most cash sales, purchased 21 percent of homes in December, up from 19 percent in November; they were 21 percent in December 2011.
Inventories are on a flat trend line in 2012.
Total housing inventory at the end of December fell 8.5 percent to 1.82 million existing homes available for sale, which represents a 4.4-month supply at the current sales pace, down from 4.8 months in November, and is the lowest housing supply since May of 2005 when it was 4.3 months, which was near the peak of the housing boom.
Listed inventory is 21.6 percent below a year ago when there was a 6.4-month supply. Raw unsold inventory is at the lowest level since January 2001 when there were 1.78 million homes on the market.
Unadjusted Total Housing Inventory
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).