March 2015 Existing Home Sales Significantly Improved

Written by Steven Hansen

The headlines for existing home sales claim “strong growth”. Our analysis of the unadjusted data shows this was an understatement. The unadjusted three month rolling averages for sales accelerated, continues in positive territory – and has been in a long term improvement trend even though being in contraction most of 2014.

Econintersect Analysis:

• Unadjusted sales growth accelerated 8.9% month-over-month, up 13.5% year-over-year – sales growth rate trend is accelerating using the 3 month moving average.
• Unadjusted price growth accelerated 0.4% month-over-month, up 5.1% year-over-year – price growth rate trend is modestly improving using the 3 month moving average.
• The homes for sale inventory grew this month, remains historically low for Marchs, and is up 2.0% from inventory levels one year ago).

NAR reported:

• Sales up 6.1% month-over-month, up 10.4% year-over-year.
• Prices up 7.8% year-over-year
• The market expected annualized sales volumes of 4.850 to 5.045 million (consensus 5.045) vs the 5.190 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 appears to be off to an encouraging start this spring. “After a quiet start to the year, sales activity picked up greatly throughout the country in March. The combination of low interest rates and the ongoing stability in the job market is improving buyer confidence and finally releasing some of the sizable pent-up demand that accumulated in recent years. The modest rise in housing supply at the end of the month despite the strong growth in sales is a welcoming sign. For sales to build upon their current pace, homeowners will increasingly need to be confident in their ability to sell their home while having enough time and choices to upgrade or downsize. More listings and new home construction are still needed to tame price growth and provide more opportunity for first-time buyers to enter the market.

NAR President Chris Polychron says there needs to be additional choices for borrowers looking for safe and secure mortgage products to finance their home purchase. Realtors® urge the U.S. Senate to schedule a vote for the bipartisan Mortgage Choice Act, which passed the U.S. House of Representatives last week. This legislation levels the playing field for brokerages with affiliated business agreements by eliminating the 3 percent cap on the calculations of fees and points in the Dodd-Frank Ability-to-Repay/Qualified Mortgage rule.

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 improvement in home price rate of growth since mid-2013.

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 4.1% 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 March was $212,100, which is 7.8 percent above March 2014. This marks the 37th consecutive month of year-over-year price gains and the largest since February 2014 (8.8 percent).

According to the NAR, all-cash sales accounted for 24% of sales this month.

The percent share of first-time buyers was 30 percent in March, marking the third time since last March that the first-time buyer share was at or above 30 percent. First-time buyers represented 29 percent of all buyers last month; they were 30 percent in March 2014.

All-cash sales were 24 percent of transactions in March, down from 26 percent in February and down considerably from a year ago (33 percent). Individual investors, who account for many cash sales, purchased 14 percent of homes in March, unchanged from last month and down from 17 percent in March 2014. Seventy percent of investors paid cash in March.

Unadjusted Inventories are moderately above the levels of one year ago.

Total housing inventory2 at the end of March climbed 5.3 percent to 2.00 million existing homes available for sale, and is now 2.0 percent above a year ago (1.96 million). Unsold inventory is at a 4.6-month supply at the current sales pace, down from 4.7 months in February.

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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