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NAR Says Home Sales Up – Do We Believe It?

As most followers of real estate know, the National Association of Realtors has been under attack recently in the press and the blogs for overstating sales and understating inventories.  For many, this diminishes the value of their reporting.

The problem as exposed to date is methodology.  So far, no evidence has been presented which would indicate some conspiracy to misrepresent.  As Econintersect evaluates the NAR unadjusted data  based on relative year-over-year (YoY) change – as long as consistently wrong methods are used, the trends would be the same if the proper methodology is used.

It does no good to throw the baby out with the bathwater.

The National Association of Realtors data for January 2011 claimed home sales have increased this month, and Econintersect agrees.  It is not true, however – that home sales have increased over the last three months.

The uptrend in existing-home sales continues, with January sales rising for the third consecutive month with a pace that is now above year-ago levels, according to the National Association of REALTORS®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 2.7 percent to a seasonally adjusted annual rate of 5.36 million in January from a downwardly revised 5.22 million in December, and are 5.3 percent above the 5.09 million level in January 2010. This is the first time in seven months that sales activity was higher than a year earlier.

Lawrence Yun, NAR chief economist, said the improvement is good but could be better. “The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence,” Yun said. “The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity.”

A parallel NAR practitioner survey2 shows first-time buyers purchased 29 percent of homes in January, down from 33 percent in December and 40 percent in January 2010 when an extended tax credit was in place.

Investors accounted for 23 percent of purchases in January, up from 20 percent in December and 17 percent in January 2010; the balance of sales were to repeat buyers. All-cash sales rose to 32 percent in January from 29 percent in December and 26 percent in January 2010.

“Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it’s not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes,” Yun said.

All-cash purchases are at the highest level since NAR started measuring these purchases monthly in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.

The national median existing-home price3 for all housing types was $158,800 in January, down 3.7 percent from January 2010. Distressed homes edged up to a 37 percent market share in January from 36 percent in December; it was 38 percent in January 2010.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said the median price is being dampened by unusual market factors. “Unprecedented levels of all-cash purchases, primarily of distressed homes sold at deep discounts, undoubtedly pulls the median price downward,” Phipps said. “Given the levels of inventory we see today, we believe that traditional homes in good condition have held their value.”

Total housing inventory at the end of January fell 5.1 percent to 3.38 million existing homes available for sale, which represents a 7.6-month supply4 at the current sales pace, down from an 8.2-month supply in December. The inventory supply is at the lowest level since December 2009 when there was a 7.3-month supply.

Econintersect believes January 2011 was the first month since the middle of 2010 (when the first home buyers credit expired) that sales improved YoY.  The unadjusted data chart below clearly proves this point.

Based on pending home sales, Econintersect estimated January 2011 home sales to be 260,000 – the actual number came in at 284,000 (all numbers unadjusted).

The unadjusted data shows there is 11.9 months of inventory – exactly the same as one year ago.  The chart shows that inventory is higher YoY – but sales are also slightly higher which yields the same months supply inventory levels.

Econintersect believes that housing inventory for sell is not a good metric – no matter if the NAR number is correct or not.  The question really is how many people would like to sell if the market becomes healthy.  This dynamic hinders overall home price recovery.

The unadjusted data shows prices are down only 2.6% YoY versus the 3.7% stated.  Here is an update of the chart we presented yesterday comparing the price declines of the various indexes which track real estate prices.

There is some temporary good news on home prices from Altos Research,  at least the seasonal spring bounce in home prices is beginning to occur.

Altos 20-City Composite is comprised of the same 20 MSAs as the S&P/Case-Shiller Home Price Index. Their 7-day weekly market price observations (black line) are showing a Spring-time bounce that will eventually show in the 90-day rolling average (orange line).

Overall, the sales volumes are off the housing crisis lows.  Real estate is moving at the right price – which creates a negative price dynamic.

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