Written by Steven Hansen
The headlines for existing home sales say that sales growth declined in November month-over-month. Our analysis says sales are down year-over-year, with the three month rolling average in decline and lower than any period since the beginning of 2012.
- Sales growth decelerated 9.4% month-over-month, down 3.6% year-over-year – sales growth rate trend is decelerating using the 3 month moving average.
- Prices growth decelerated 1.8% month-over-month, Up 7.3% year-over-year – price growth rate trend is decelerating using the 3 month moving average.
- The homes for sale inventory declined insignificantly this month, but is historically low for Novembers.
- Sales down 4.3% month-over-month, down 1.2% year-over-year
- Prices up 9.4% year-over-year
- The market expected annualized sales volumes of 4.98 to 5.00 million (vs the 4.90 million reported)
Overall, November ended 28 straight months of improving year-over-year home sales volumes (unadjusted data). Since mid 2011, home sales have been positively growing year-over-year. 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 the subsequent data returned to the channel. Now, home sales volumes are below a two year growth 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 is being squeezed. “Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit. There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”
NAR President Steve Brown, noted that new rules defining the Qualified Mortgage will be going into effect soon. “New underwriting rules to protect borrowers, effective in January, will prohibit many loan features, set tighter limits on the amount of debt a borrower can have and still get a mortgage, and require that lenders accurately measure a borrower’s ability to repay. This means that qualified borrowers are getting a loan that they are very likely to be able to repay, but some borrowers may wind up paying much more for their mortgage, or not get a loan at all due to the tougher standard. The new rules may tighten credit too much, but we’re hopeful regulators will make adjustments if this proves to be true.”
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 $196,300 in November, up 9.4 percent from November 2012.
Distressed homes – foreclosures and short sales – accou2ted for 14 percent of November sales, unchanged from October; they were 22 percent in November 2012. A smaller share of distressed sales is contributing to price growth.
According to the NAR, all-cash sales accounted for 32% of sales this month.
First-time buyers accounted for 28 percent of purchases in November, unchanged from October; they were 30 percent in November 2012.
All-cash sales comprised 32 percent of transactions in November, up from 31 percent in October and 30 percent in November 2012. Individual investors, who account for many cash sales, purchased 19 percent of homes in November, unchanged from October and from November 2012. Last month, seven out of 10 investors paid cash.
Inventories declined marginally.
Total housing inventory at the end of November declined 0.9 percent to 2.09 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace, compared with 4.9 months in October. Unsold inventory is 5.0 percent above a year ago, when there was a 4.8-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).