Written by Steven Hansen
The headlines for existing home sales say that sales growth declined in September month-over-month. Our analysis says sales were stronger compared to last month, and overall growth remains relatively strong and in line with 2013 growth trends.
- Sales growth accelerated 6.2% month-over-month, Up 15.0% year-over-year – sales growth rate trend is accelerating using the 3 month moving average.
- Prices growth decelerated 0.1% month-over-month, Up 9.2% year-over-year – price growth rate trend is decelerating using the 3 month moving average.
- The homes for sale inventory was unchanged this month, but is historically low for Septembers.
- Sales down 1.9% month-over-month, Up 10.7% year-over-year
- Prices up 11.7% year-over-year
- The market expected annualized sales volumes of 5.15 to 5.30 million (vs the 5.29 million reported)
Overall, this is the 27th 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 flat-lined after the beginning of 2012 as shown on the graph below. The data in July spiked above this 2013 trend channel, but August and September 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 a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said there are far-ranging consequences from the repeating stalemates in Washington. “Just one impact of the recent government shutdown – delays in tax transcripts needed for approval of mortgage loans – put a monkey wrench in the transaction process and could negatively impact sales closings in next month’s report,” he said. Thomas said flood insurance also is a concern. “Realtors® report that approximately 10 percent of transactions in September were located in flood zones, and that nearly one out of 10 of those transactions were delayed or canceled due to concerns over rising insurance rates.” Notably higher flood insurance rates went into effect on October 1, and could impact future sales in flood zones.
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 plateau in home price rate of growth.
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 9.2% year-over-year gain.
Even so, homes today are still affordable according to the NAR’s Housing Affordability Index – although this index continues to decline.
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 $199,200 in September, up 11.7 percent from September 2012. This is the 10th consecutive month of double-digit year-over-year increases.
Distressed homes – foreclosures and short sales – accounted for 14 percent of September sales, up from 12 percent in August, which was the lowest share since monthly tracking began in October 2008; they were 24 percent in September 2012. Lower levels in the share of distressed sales account for some of the growth in median price.
According to the NAR, all-cash sales accounted for 33% of sales this month.
First-time buyers accounted for 28 percent of purchases in September, unchanged from August, but down from 32 percent in September 2012.
All-cash sales comprised 33 percent of transactions in September, up from 32 percent in August, and 28 percent in September 2012. Individual investors, who account for many cash sales, purchased 19 percent of homes in September, up from 17 percent in August, and 18 percent in September 2012. Last month, 74 percent of investors paid cash.
Inventories rose marginally.
Total housing inventory at the end of September was unchanged at 2.21 million existing homes available for sale, which represents a 5.0-month supply5 at the current sales pace, compared with a 4.9-month supply in August. Unsold inventory is 1.8 percent above a year ago, when there was a 5.4-month supply.
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).