Written by Steven Hansen
The headlines for existing home sales say that sales are “moving in the right direction” – but still shows year-over-year growth as negative. Our analysis is more positive – with sales growing year-over-year. The three month rolling averages for sales are accelerating.
- Sales growth accelerated 9.2% month-over-month, up 1.2% year-over-year – sales growth rate trend is accelerating using the 3 month moving average.
- Prices growth decelerated 0.2% month-over-month, Up 3.1% year-over-year – price growth rate trend is decelerating using the 3 month moving average.
- The homes for sale inventory grew this month, but is historically low for Junes (but higher than inventory levels one year ago).
- Sales up 2.6% month-over-month, down 2.3% year-over-year.
- Prices up 4.3% year-over-year
- The market expected annualized sales volumes of 4.90 to 5.06 million (consensus 4.99) vs the 5.04 million reported.
November 2013 ended 28 straight months of improving year-over-year home sales volumes (unadjusted data) – and the data this month continued the data contraction year-over-year.
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 housing fundamentals are moving in the right direction. “Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country. This bodes well for rising home sales in the upcoming months as consumers are provided with more choices,” he said. “On the contrary, new home construction needs to rise by at least 50 percent for a complete return to a balanced market because supply shortages – particularly in the West – are still putting upward pressure on prices.”
Yun also noted that stagnant wage growth is holding back what should be a stronger pace of sales. “Hiring has been a bright spot in the economy this year, adding an average of 230,000 jobs each month,” he said. “However, the lack of wage increases is leaving a large pool of potential homebuyers on the sidelines who otherwise would be taking advantage of low interest rates. Income growth below price appreciation will hurt affordability.”
NAR President Steve Brown said Realtors® are reporting that some prospective buyers who have above average credit scores but low down payments are deterred from homeownership by the high cost of FHA mortgage insurance. “Access to affordable credit continues to hamper young, prospective first-time buyers,” added Brown. “NAR recommends that FHA reduce high annual mortgage insurance premiums for all qualified homebuyers and eliminate the insurance requirement for the life of the loan. FHA’s HAWK program is a good start, but it should offer further reductions for participating home buyers.”
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 general decline 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 3.4% year-over-year gain.
Homes today are still affordable according to the NAR’s Housing Affordability Index.
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 median existing-home price for all housing types in June was $223,300, which is 4.3 percent above June 2013. This marks the 28th consecutive month of year-over-year price gains.
According to the NAR, all-cash sales accounted for 32% of sales this month.
The percent share of first-time buyers continues to underperform historically, rising slightly to 28 percent in June (27 percent in May), but remain at an overall average of 28 percent over the past year.
For the third consecutive month – as well as the average of the previous 12 months – all-cash sales in June were 32 percent of transactions, up from 31 percent in June 2013. Individual investors, who account for many cash sales, purchased 16 percent of homes in June, unchanged from May; they were 17 percent in June 2013. Sixty-nine percent of investors paid cash in June.
Inventories improved – and are higher than the levels one year ago.
Total housing inventory at the end of June rose 2.2 percent to 2.30 million existing homes available for sale, which represents a 5.5-month supply at the current sales pace, unchanged from May. Unsold inventory is 6.5 percent higher than a year ago, when there were 2.16 million existing homes available for sale.
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, Econintersectanalysis 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).
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