Written by Steven Hansen
The headlines for existing home sales say that sales growth improved in August month-over-month. Our analysis shows sales were soft compared to last month, but overall growth remains strong and in line with 2013 growth trends.
- Sales growth decelerated 10.2% month-over-month, Up 10.5% year-over-year – sales growth rate trend is decelerating using the 3 month moving average.
- Prices growth accelerated 1.3% month-over-month, Up 11.1% year-over-year – price growth rate trend is decelerating using the 3 month moving average.
- The homes for sale inventory grew marginally this month, but is historically low for Augusts.
- Sales up 1.7% month-over-month, Up 13.2% year-over-year
- Prices up 14.7% year-over-year
- The market expected annualized sales volumes of 5.0 to 5.3 million (vs the 5.48 million reported)
Overall, this is the 26th 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 from mid-2010 to the beginning of 2012 appears to have flat-lined as shown on the graph below – until this July 2013. The data in July spiked above this 2013 trend channel, but August data returned to the channel.
Unadjusted Year-over-Year Change in Existing Home Sales Volumes (blue line) – 3 Month Rolling Average (red line)
The graph below presents unadjusted home sales volumes.
Unadjusted Monthly Home Sales Volumes
Here are the headline words from the NAR analysts:
Lawrence Yun, NAR chief economist, said the market may be experiencing a temporary peak. “Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions,” he said. “Tight inventory is limiting choices in many areas, higher mortgage interest rates mean affordability isn’t as favorable as it was, and restrictive mortgage lending standards are keeping some otherwise qualified buyers from completing a purchase.”
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said rising home values will encourage more people to sell. “As the equity position of most homeowners continues to improve, some who have been on the sidelines will list their home for sale,” he said. “Most of those owners also will be buying another home, but higher levels of new home construction going into 2014, combined with some reduction in demand from less favorable affordability conditions, will help to moderate price growth to more sustainable levels.”
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 a 10.1% year-over-year gain.
Even so, homes today are still affordable according to the NAR’s Housing Affordability Index – although this index appears to currently have some seasonality.
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 $212,100 in August, up 14.7 percent from August 2012. This is the strongest year-over-year price gain since October 2005 when the median rose 16.6 percent, and marks 18 consecutive months of year-over-year price increases.
Distressed homes – foreclosures and short sales – accounted for 12 percent of August sales, down from 15 percent in July, and is the lowest share since monthly tracking began in October 2008; they were 23 percent in August 2012. Ongoing declines in the share of distressed sales are responsible for some of the growth in median price.
According to the NAR, all-cash sales accounted for 32% of sales this month.
First-time buyers accounted for 28 percent of purchases in August, down from 29 percent in July and 31 percent in August 2012.
All-cash sales comprised 32 percent of transactions in August, up from 31 percent in July and 27 percent in August 2012. Individual investors, who account for many cash sales, purchased 17 percent of homes in August, compared with 16 percent in July and 18 percent in August 2012. Last month, three out of four investors paid cash.
Inventories rose marginally.
Total housing inventory at the end of August increased 0.4 percent to 2.25 million existing homes available for sale, which represents a 4.9-month supply2 at the current sales pace, down from a 5.0-month supply in July. Unsold inventory is 6.3 percent below a year ago, when there was a 6.0-month supply. Limited inventory in some areas means multiple bidding remains a factor; 17 percent of all homes sold above the asking price in August, although 63 percent sold below list price.
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).