May 2015 Existing Home Sales Headlines Say Sales Up Strongly. We Do Not See Sales Up.

Written by Steven Hansen

The headlines for existing home sales claim “May home sales rebounded strongly following April’s decline and are now at their highest pace since November 2009“. Our analysis of the unadjusted data shows that home sales did not rebound – but that the rolling averages did improve. Overall, existing home sales are improving and in a upward trending channel.

Econintersect Analysis:

• Unadjusted sales growth decelerated 1.3% month-over-month, up 5.1% year-over-year – sales growth rate trend is accelerating using the 3 month moving average.
• Unadjusted price growth unchanged month-over-month, up 5.2% year-over-year – price growth rate trend is modestly improving using the 3 month moving average.
• The homes for sale inventory improved this month, remains historically low for Mays, and is up 1.8% from inventory levels one year ago).

NAR reported:

• Sales up 5.1% month-over-month, up 9.2% year-over-year.
• Prices up 7.9% year-over-year
• The market expected annualized sales volumes of 5.15 to 5.35 million (consensus 5.25) vs the 5.35 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 May home sales rebounded strongly following April’s decline and are now at their highest pace since November 2009 (5.44 million). “Solid sales gains were seen throughout the country in May as more homeowners listed their home for sale and therefore provided greater choices for buyers,” he said. “However, overall supply still remains tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation. Without solid gains in new home construction, prices will likely stay elevated — even with higher mortgage rates above 4 percent.”

The return of first-time buyers in May is an encouraging sign and is the result of multiple factors, including strong job gains among young adults, less expensive mortgage insurance and lenders offering low downpayment programs,” said Yun. “More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise.”

NAR President Chris Polychron says Realtors® overwhelmingly support the Consumer Financial Protection Bureau’s proposal of a two-month delay for the implementation of the new Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure, or TRID, regulation. “NAR has long advocated the need to avoid implementing the new regulation during the peak buying season,” he said. “With interest rates on the rise, many families wanting to buy are looking to lock-in at current rates and move into their new home before the school year starts. Holding off on TRID implementation through the summer helps these buyers avoid any disruption or delays in closings that could develop once the regulation goes into effect.”

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 6.3% 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 May was $228,700, which is 7.9 percent above May 2014. This marks the 39th consecutive month of year-over-year price gains.

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

The percent share of first-time buyers rose to 32 percent in May, up from 30 percent in April and matching the highest share since September 2012. A year ago, first-time buyers represented 27 percent of all buyers.

All-cash sales were 24 percent of transactions in May for the third straight month and are down considerably from a year ago (32 percent). Individual investors, who account for many cash sales, purchased 14 percent of homes in May, unchanged from last month and down from 16 percent in May 2014. Sixty-seven percent of investors paid cash in May.

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

Total housing inventory at the end of May increased 3.2 percent to 2.29 million existing homes available for sale, and is 1.8 percent higher than a year ago (2.25 million). Unsold inventory is at a 5.1-month supply at the current sales pace, down from 5.2 months in April.

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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