Written by Steven Hansen
The headlines for existing home sales say that sales improved – with this is the first time in a year that home sales volumes grew year-over-year (seasonally adjusted data). Our analysis of the unadjusted data also is positive. The unadjusted three month rolling averages for sales are now only marginally negative but accelerating. Bottom line – this was a relatively good report.
- Sales growth accelerated 2.6% month-over-month, up 4.7% year-over-year – sales growth rate trend is accelerating (but marginally in contraction) using the 3 month moving average.
- Prices growth accelerated 0.5% month-over-month, up 4.0% year-over-year – price growth rate trend is statistically improving using the 3 month moving average.
- The homes for sale inventory declined marginally this month, and is historically low for Octobers (but higher than inventory levels one year ago).
- Sales up 1.5% month-over-month, up 2.5% year-over-year.
- Prices up 5.5% year-over-year
- The market expected annualized sales volumes of 5.01 to 5.25 million (consensus 5.15) vs the 5.26 million reported.
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, says the housing market this year has been a tale of two halves. “Sales activity in October reached its highest annual pace of the year as buyers continue to be encouraged by interest rates at lows not seen since last summer, improving levels of inventory and stabilizing price growth,” he said. “Furthermore, the job market has shown continued strength in the past six months. This bodes well for solid demand to close out the year and the likelihood of additional months of year-over-year sales increases.”
“The growth in housing supply this year will likely prevent the drastic sales slowdown and coinciding spike in home prices we saw last winter due to low inventory,” says Yun. “However, more housing starts are needed to increase supply, meet current demand and keep price growth in check.”
“Although distressed sales are trending downward, there are still areas (such as judicial states Florida, Maryland and New York) plagued by foreclosures, and homeowners faced with the awful choice between a tax bill they are unable to pay and losing their home,” says NAR President Chris Polychron, and urges the U.S. House to schedule a vote on “The Mortgage Forgiveness Tax Relief Act,” as soon as possible. This bipartisan legislation would extend an expired provision that has helped millions of distressed American families by allowing tax relief when lenders forgive a portion of the mortgage debt they owe.”
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 – although this month home prices improved.
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 October was $208,300, which is 5.5 percent above October 2013. This marks the 32nd consecutive month of year-over-year price gains.
According to the NAR, all-cash sales accounted for 27% of sales this month.
The percent share of first-time buyers in October remained at 29 percent for the fourth consecutive month; first-time buyers have represented less than 30 percent of all buyers in 18 of the past 19 months. A separate NAR survey released earlier this month revealed that the annual share of first-time buyers fell to its lowest level in nearly three decades.
All-cash sales were 27 percent of transactions in October, up from 24 percent in September but down from 31 percent in October of last year. Individual investors, who account for many cash sales, purchased 15 percent of homes in October, up from 14 percent last month but below October 2013 (19 percent). Sixty-five percent of investors paid cash in October.
Inventories declined – but are higher than the levels one year ago.
Total housing inventory3 at the end of October fell 2.6 percent to 2.22 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace – the lowest since March (also 5.1 months). Unsold inventory is now 5.2 percent higher than a year ago, when there were 2.11 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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