Written by Steven Hansen
The headlines for existing home sales say “closings came back in force last month as a greater number of buyers – mostly in the Northeast and Midwest – overcame depressed inventory levels and steady price growth to close on a home”. Our analysis of the unadjusted data shows that home sales declined, and the rolling averages degraded. Sales price rate of growth was mixed.
Econintersect Analysis:
- Unadjusted sales rate of growth decelerated 2.7 % month-over-month, up 3.7% year-over-year – sales growth rate trend decelerated using the 3 month moving average.
- Unadjusted price rate of growth accelerated 0.4 % month-over-month, up 3.4 % year-over-year – price growth rate trend declined using the 3 month moving average.
- The homes for sale inventory marginally grew this month, but remains historically low for Marchs, and is down 1.5 % from inventory levels one year ago).
- Sales up 5.1 % month-over-month, up 1.5 % year-over-year.
- Prices up 5.7 % year-over-year
- The market expected annualized sales volumes of 5.190 to 5.400 million (consensus 5.268 million) vs the 5.33 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 home sales had a nice rebound in March following February’s uncharacteristically large decline. “Closings came back in force last month as a greater number of buyers – mostly in the Northeast and Midwest – overcame depressed inventory levels and steady price growth to close on a home,” he said. “Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well. However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.”
“The choppiness in sales activity so far this year is directly related to the unevenness in the rate of new listings coming onto the market to replace what is, for the most part, being sold rather quickly,” adds Yun. “Additionally, a segment of would-be buyers at the upper end of the market appear to have been spooked by January’s stock market correction.”
“With rents steadily rising and average fixed rates well below 4 percent, qualified first-time buyers should be more active participants than what they are right now,” adds Yun. “Unfortunately, the same underlying deterrents impacting their ability to buy haven’t subsided so far in 2016. Affordability and the low availability of starter homes is still a major barrier for them in most markets.”
NAR President Tom Salomone, says despite modest improvements, mortgage credit is still difficult to come by for many first-time buyers and middle-income households. “Reducing the Federal Housing Administration’s annual mortgage insurance premium rate and repealing its life-of-loan policy requirement would certainly expand options for more of these buyers,” he said. “These changes would save consumers money and further strengthen the FHA’s program by enticing more creditworthy borrowers to seek out FHA-insured loans.”
Comparison of Home Price Indices – Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green line, left axis), NAR 3 month rolling average (red line,right axis)
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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-2012.
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 does a more complete analysis of home prices with the Case-Shiller analysis. The graphs above on prices use a three month rolling average of the NAR data, and show a 3.8 % 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 March was $222,700, up 5.7 percent from March 2015 ($210,700). March’s price increase marks the 49th consecutive month of year-over-year gains.
According to the NAR, all-cash sales accounted for 25 % of sales this month.
The share of first-time buyers was 30 percent in March, unchanged both from February and a year ago. First-time buyers in all of 2015 also represented an average of 30 percent.
All-cash sales were 25 percent of transactions in March (unchanged from February) and are up from 24 percent a year ago. Individual investors, who account for many cash sales, purchased 14 percent of homes in March, down from 18 percent in February and unchanged from a year ago. Sixty-six percent of investors paid cash in March.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of March increased 5.9 percent to 1.98 million existing homes available for sale, but is still 1.5 percent lower than a year ago (2.01 million). Unsold inventory is at a 4.5-month supply at the current sales pace, up from 4.4 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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