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Existing Home Sales Are Not As Bad As NAR Suggests

According to the methodology of the National Association of Realtors (NAR), February 2011 existing home sales are down 9.6%.  According to Econintersect, both January and February existing home sales have correlated well since 2005 – and sales are likely flat.

Econintersect analyzes using unadjusted data.  The reason sales appears down is that 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 shows the unadjusted sales since 2005.

Based on January pending home sales,  Econintersect predicted February existing home sales of 305,000 against an actual 293,000.

Until June, YoY data will be compared against the now expired first time home buyers credit – and the data will appear weak.  Analysts need to see through the haze produced by this artificial incentive.  Here is the words of the NAR accompanying the data:

Existing-home sales fell in February following three straight monthly increases, according to the National Association of REALTORS®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 9.6 percent to a seasonally adjusted annual rate of 4.88 million in February from an upwardly revised 5.40 million in January, and are 2.8 percent below the 5.02 million pace in February 2010.

Lawrence Yun NAR chief economist, expects an uneven recovery.  “Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers,” he said.  “This tug and pull is causing a gradual but uneven recovery.  Existing-home sales remain 26.4 percent above the cyclical low last July.”

A parallel NAR practitioner survey shows first-time buyers purchased 34 percent of homes in February, up from 29 percent in January; they were 42 percent in February 2010.

All-cash sales were a record 33 percent in February, up from 32 percent in January; they were 27 percent in February 2010.  Investors accounted for 19 percent of sales activity in February, down from 23 percent in January; they were 19 percent in February 2010.  The balance of sales were to repeat buyers.

The national median existing-home price3 for all housing types was $156,100 in February, which is 5.2 percent below February 2010. Distressed homes – sold at discount – accounted for a 39 percent market share in February, up from 37 percent in January and 35 percent in February 2010.  “The decline in price corresponds to the record level of all-cash purchases where buyers – largely investors – are snapping up homes at bargain prices,” Yun explained.  “We’d be seeing greater numbers of traditional home buyers if mortgage credit conditions return to normal.”

Total housing inventory at the end of February rose 3.5 percent to 3.49 million existing homes available for sale, which represents an 8.6-month supply4 at the current sales pace, up from a 7.5-month supply in January.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.95 percent in February from 4.76 percent in January; the rate was 4.99 percent in February 2010.

Because of the effects of the recession, seasonal adjustment methodology is producing funny results. Econintersect sees a slightly improving inventory – but this data is meaningless as inventory measurement does not include foreclosures, vacant houses not on the market, or people who want to sell but cannot because their home is underwater.

The unadjusted data shows there is 11.9 months of inventory – exactly the same January, and higher than the 11.6 one year ago.  The chart above shows that inventory is lower YoY – but sales are also slightly lower.

Prices are continuing to decline.  The graph below using a 3 month NAR unadjusted home price average so that the data is comparable to other pricing indexes.

There is no data to show that the existing home market has stabilized – and it will likely continue to be a drag on the economy.

Related Articles

New Housing Permits Offer Strange Data  by Steven Hansen

Economic Data Points to Growing Profitability in Residential Builders  By John Lounsbury and Steven Hansen

CoreLogic Home Price Index Falls to New Low  by Steven Hansen

Housing Market Begins Its Spring Uptick  GEI News Brief

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