Written by Steven Hansen
The headlines for existing home sales say that sales were stronger in January, and our analysis shows sales are stronger – one of the strongest months in the last 12 months.
- Sales up 4.8% month-over-month, Up 11.9% year-over-year
- Prices up 0.0% month-over-month, Up 10.1% year-over-year
- Sales growth was slightly above average for the last 12 month period, while the sales prices have fallen as is usual for Januarys.
- Sales up 0.4% month-over-month, Up 9.1% year-over-year
- Prices Up 12.3% year-over-year (up 11.5% in December 2012)
- The market expected annualized sales volumes of 4.95 million (vs the 4.92 million reported)
Overall, this is the nineteenth 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 seen in the last 12 months.
Unadjusted Year-over-Year Change in Existing Home Sales Volumes
The graph below presents unadjusted home sales volumes – my takeaway is that January’s growth was very good when compared to growth over the last 12 months.
Unadjusted Monthly Home Sales Volumes
Here are the headline words from the NAR analysts:
Lawrence Yun , NAR chief economist, said tight inventory is a major factor in the market. “Buyer traffic is continuing to pick up, while seller traffic is holding steady,” he said. “In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country.”
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said homes are selling faster. “The typical home is selling nearly four weeks faster than it did a year ago,” he said. “In this environment, Realtors® can help buyers strike a balance between moving quickly and protecting their interests, such as making offers contingent upon a satisfactory home inspection and obtaining a loan; of course, a loan pre-qualification may help too.”
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 2012 was 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. The graphs above on prices use a three month rolling average of the NAR data, and show an 9.5% 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 price3 for all housing types was $173,600 in January, up 12.3 percent from January 2012, which is the 11th consecutive month of year-over-year price increases; that last occurred from July 2005 to May 2006. The January gain is the strongest since November 2005 when it was 12.9 percent above a year earlier
Distressed homes – foreclosures and short sales – accounted for 23 percent of January sales, down from 24 percent in December and 35 percent in January 2012. Fourteen percent of January sales were foreclosures and 9 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in January, while short sales were discounted 12 percent.
According to the NAR, all-cash sales accounted for 30% of sales this month.
First-time buyers accounted for 30 percent of purchases in January, unchanged from December; they were 33 percent in January 2012.
All-cash sales were at 28 percent of transactions in January, down from 29 percent in December and 31 percent in January 2012. Investors, who account for most cash sales, purchased 19 percent of homes in January, down from 21 percent in December and 23 percent in January 2012.
Inventories continue to decline.
Total housing inventory at the end of January fell 4.9 percent to 1.74 million existing homes available for sale, which represents a 4.2-month supply 2 at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months.
Listed inventory is 25.3 percent below a year ago when there was a 6.2-month supply. Raw unsold inventory is at the lowest level since December 1999 when there were 1.71 million homes on the market.
We expect a seasonal rise of inventory this spring, but it may be insufficient to avoid more frequent incidences of multiple bidding and faster-than-normal price growth.
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).