January 2015 Existing Home Sales Were Disappointing. Weather Blamed As a Potential Factor.

Written by Steven Hansen

The headlines for existing home sales say that sales “cooled” to their lowest rate in nine months but sales volumes were up from one year ago. Our analysis of the unadjusted data shows the unadjusted three month rolling averages for sales decelerating but remaining in positive territory after being in contraction most of 2014.

Econintersect Analysis:

• Unadjusted sales growth decelerated 6.4% month-over-month, up 0.4% year-over-year – sales growth rate trend is decelerating using the 3 month moving average.
• Unadjusted price growth accelerated 1.6% month-over-month, up 4.8% year-over-year – price growth rate trend is marginally improving using the 3 month moving average.
• The homes for sale inventory was statistically unchanged this month, and is historically low for Januarys (and is statisitically unchanged from inventory levels one year ago).

NAR reported:

• Sales down 4.9% month-over-month, up 3.2% year-over-year.
• Prices up 6.2% year-over-year
• The market expected annualized sales volumes of 4.850 to 5.200 million (consensus 4.950) vs the 4.820 million reported.

Unadjusted Year-over-Year Change in Existing Home Sales Volumes (blue line) – 3 Month Rolling Average (red line)

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The graph below presents unadjusted home sales volumes.

Unadjusted Monthly Home Sales Volumes

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Here are the headline words from the NAR analysts:

Lawrence Yun, NAR chief economist, says the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country. “January housing data can be volatile because of seasonal influences, but low housing supply and the ongoing rise in home prices above the pace of inflation appeared to slow sales despite interest rates remaining near historic lows,” he said. “Realtors® are reporting that low rates are attracting potential buyers, but the lack of new and affordable listings is leading some to delay decisions.”

“Although sales cooled in January, home prices continued solid year-over-year growth,” adds Yun. “The labor market and economy are markedly improved compared to a year ago, which supports stronger buyer demand. The big test for housing will be the impact on affordability once rates rise.”

NAR President Chris Polychron says that the Federal Housing Administration’s overly restrictive approval process limits buyers’ access to condos even though these properties are among the strongest in the agency’s portfolio. “Condominiums offer an affordable option and are the first step to homeownership for many homebuyers. NAR has urged the FHA to develop policies that will give buyers access to more flexible and affordable financing opportunities and a wider choice of approved condo developments.”

Comparison of Home Price Indices – Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green lin.

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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 again 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)

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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 3.6% 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 January was $199,600, which is 6.2 percent above January 2014. This marks the 35th 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 declined to 28 percent in January, the lowest since June 2014 (also 28 percent) and down from 29 percent in December. First-time buyers represented 26 percent of sales last January.

All-cash sales were 27 percent of transactions in January, up from 26 percent in December but down from 33 percent in January of last year. Individual investors, who account for many cash sales, purchased 17 percent of homes in January, unchanged from last month and below January 2014 (20 percent). Sixty-seven percent of investors paid cash in January.

Inventories declined – but are higher than the levels one year ago.

Total housing inventory2 at the end of January increased 0.5 percent to 1.87 million existing homes available for sale, but is 0.5 percent lower than a year ago (1.88 million). Unsold inventory is at a 4.7-month supply at the current sales pace – up from 4.4 months in December.

Unadjusted Total Housing Inventory

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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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