Written by Steven Hansen
The headlines for existing home sales say “April’s sales increase signals slowly building momentum for the housing market this spring”. Our analysis of the unadjusted data shows that home sales improved relative to last month, but the rolling averages degraded. Sales price rate of growth improved.
Econintersect Analysis:
- Unadjusted sales rate of growth accelerated 0.9 % month-over-month, up 4.9 % year-over-year – sales growth rate trend decelerated using the 3 month moving average.
- Unadjusted price rate of growth accelerated 1.0 % month-over-month, up 4.2 % year-over-year – price growth rate trend declined using the 3 month moving average.
- The homes for sale inventory grew this month, but remains historically low for Aprils, and is down 3.6 % from inventory levels one year ago).
- Sales up 1.7 % month-over-month, up 6.0 % year-over-year.
- Prices up 6.3 % year-over-year
- The market expected annualized sales volumes of 5.350 to 5.460 million (consensus 5.400 million) vs the 5.45 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 April’s sales increase signals slowly building momentum for the housing market this spring. “Primarily driven by a convincing jump in the Midwest, where home prices are most affordable, sales activity overall was at a healthy pace last month as very low mortgage rates and modest seasonal inventory gains encouraged more households to search for and close on a home,” he said. “Except for in the West — where supply shortages and stark price growth are hampering buyers the most — sales are meaningfully higher than a year ago in much of the country.”
“The temporary relief from mortgage rates currently near three-year lows has helped preserve housing affordability this spring, but there’s growing concern a number of buyers will be unable to find homes at affordable prices if wages don’t rise and price growth doesn’t slow,” adds Yun.
“Looking ahead, with demand holding steady and supply levels still far from sufficient, the market for entry-level and mid-priced homes will likely continue to be the most competitive heading into the summer months,” says Yun.
“Secretary Castro’s update that the condo rule changes are in their final stages before implementation received great applause from Realtors® both at the forum and throughout the country,” said NAR President Tom Salomone. “To ensure that purchasing a condo increasingly becomes a viable and affordable option for first-time buyers, NAR supports the ongoing efforts to eliminate unnecessary barriers holding back condo sales. We hope that progress on this condo rule means we’ll see some much-needed changes in the near future.”
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 April was $232,500, up 6.3 percent from April 2015 ($218,700). April’s price increase marks the 50th consecutive month of year-over-year gains.
According to the NAR, all-cash sales accounted for 24 % of sales this month.
The share of first-time buyers was 32 percent in April, up from 30 percent both in March and a year ago. First-time buyers in all of 2015 also represented an average of 30 percent.
All-cash sales were 24 percent of transactions in April, down from 25 percent in March and unchanged from a year ago. Individual investors, who account for many cash sales, purchased 13 percent of homes in April (matching the lowest share since October 2015), down from 14 percent in both in March and a year ago. Sixty-nine percent of investors paid cash in April.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of April increased 9.2 percent to 2.14 million existing homes available for sale, but is still 3.6 percent lower than a year ago (2.22 million). Unsold inventory is at a 4.7-month supply at the current sales pace, up from 4.4 months in March.
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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