September 2015 Existing Home Sales Headlines Say Sales Up.

Written by Steven Hansen

The headlines for existing home sales say “while current price growth around 6 percent is still roughly double the pace of wages, affordability has slightly improved since the spring and is helping to keep demand at a strong and sustained pace“. Our analysis of the unadjusted data shows that home sales improved – but that the rolling averages declined.

Econintersect Analysis:

• Unadjusted sales rate of growth accelerated 2.8 % month-over-month, up 8.0% year-over-year – sales growth rate trend declined using the 3 month moving average.
• Unadjusted price rate of growth accelerated 1.0 % month-over-month, up 3.9 % year-over-year – price growth rate trend is modestly slowing using the 3 month moving average.
• The homes for sale inventory significantly declined this month, remains historically low for Septembers, and is down 3.1 % from inventory levels one year ago).

NAR reported:

• Sales up 4.7 % month-over-month, up 8.8 % year-over-year.
• Prices up 6.1 % year-over-year
• The market expected annualized sales volumes of 5.250 to 5.500 million (consensus 5.35 million) vs the 5.55 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 a slight moderation in home prices in some markets and mortgage rates remaining below 4 percent gave more households the confidence to close on a home last month. “September home sales bounced back solidly after slowing in August and are now at their second highest pace since February 2007 (5.79 million),” he said. “While current price growth around 6 percent is still roughly double the pace of wages, affordability has slightly improved since the spring and is helping to keep demand at a strong and sustained pace.”

“Despite persistent inventory shortages, the housing market has made great strides this year, backed by an increasing share of pent-up sellers realizing the increased equity they’ve gained from rising home prices and using it towards trading up or moving into a smaller home,” says Yun. “Unfortunately, first-time buyers are still failing to generate any meaningful traction this year.”

NAR President Chris Polychron says Realtors® strongly back the passing of H.R. 3700, the “Housing Opportunity Through Modernization Act of 2015.” Polychron testified in support of the bill yesterdaybefore the U.S. House Financial Services Subcommittee on Housing and Insurance. “This bill helps expand homeownership and rental housing opportunities at all levels and specifically includes changes to Federal Housing Administration policies that limit the flexible and affordable financing needed by many potential condo buyers — especially first-time buyers.”

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 4.6% year-over-year gain.

Homes today are still relatively 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 September was $221,900, which is 6.1 percent above September 2014 ($209,100). September’s price increase marks the 43rd consecutive month of year-over-year gains.

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

First-time buyers fell to 29 percent of sales in September after climbing to their highest share of the year in August (32 percent). A year ago, first-time buyers represented 29 percent of all buyers.

All-cash sales rose to 24 percent of transactions in September (22 percent in August) and are unchanged from a year ago. Individual investors, who account for many cash sales, purchased 13 percent of homes in September, up from 12 percent in August but down from 14 percent a year ago. Sixty-seven percent of investors paid cash in September.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory at the end of September decreased 2.6 percent to 2.21 million existing homes available for sale, and is now 3.1 percent lower than a year ago (2.28 million). Unsold inventory is at a 4.8-month supply at the current sales pace, down from 5.1 months in August.

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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