Written by Steven Hansen
The headlines for existing home sales were down and say “Hopes of a meaningful sales breakthrough as a result of this summer’s historically low mortgage rates failed to materialize because supply and affordability restrictions continue to keep too many would-be buyers on the sidelines.”. Our analysis of the unadjusted data is a touch better than the headlines.
Analyst Opinion of Existing Home Sales
Whether sales were up or down this month relative to last month misses the point – sales growth rate is at 2 year lows. There seems no end to the slow existing home growth as inventory levels are at levels not seen in Augusts in decades and decades.
Econintersect Analysis:
- Unadjusted sales rate of growth accelerated 14.2 % month-over-month, up 7.3 % year-over-year – sales growth rate trend was marginally improved using the 3 month moving average.
- Unadjusted price rate of growth accelerated 0.7 % month-over-month, up 4.0 % year-over-year – price growth rate trend marginally improved using the 3 month moving average.
- The homes for sale inventory declined this month, but remains historically low for Augusts, and is down 10.1 % from inventory levels one year ago).
- Sales down 0.9 % month-over-month, up 0.8 % year-over-year.
- Prices up 5.1 % year-over-year
- The market expected annualized sales volumes of 5.350 M to 5.550 million (consensus 5.540 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 recent job growth is not yielding higher home sales. “Healthy labor markets in most the country should be creating a sustained demand for home purchases,” he said. “However, there’s no question that after peaking in June, sales in a majority of the country have inched backwards because inventory isn’t picking up to tame price growth and replace what’s being quickly sold.”
Added Yun, “Hopes of a meaningful sales breakthrough as a result of this summer’s historically low mortgage rates failed to materialize because supply and affordability restrictions continue to keep too many would-be buyers on the sidelines.”
“It’s very concerning to see that inventory conditions not only show no signs of improving but have actually worsened in recent months from their already suppressed levels a year ago,” added Yun. “While recent data from the U.S. Census Bureau (link is external) shows that household incomes rose strongly last year, home prices are still outpacing incomes in many metro areas because of the persistent shortage of new and existing homes for sale. Without more supply, the U.S. homeownership rate will remain near 50-year lows.”
NAR President Tom Salomone, says in today’s fast-moving market, a Realtor® who knows about down payment options4and their target area is essential to a successful buying experience. “Given the inventory shortages in most markets, new listings at affordable prices are receiving multiple offers and going under contract almost immediately upon becoming available,” he said. “Home shoppers serious about buying need to be ready with a pre-approval. This allows a Realtor® to hone in only on homes within the buyer’s price range and ensures any offer presented to the seller is taken seriously.”
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 3.6 % 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 August was $240,200, up 5.1 percent from August 2015 ($228,500). August’s price increase marks the 54th consecutive month of year-over-year gains.
According to the NAR, all-cash sales accounted for 22 % of sales this month.
The share of first-time buyers was 31 percent in August, which is down from 32 percent both in July and a year ago. First-time buyers represented 30 percent of sales in all of 2015.
All-cash sales were 22 percent of transactions in August, up from 21 percent in July and unchanged from a year ago. Individual investors, who account for many cash sales, purchased 13 percent of homes in August, up from 11 percent in July and 12 percent a year ago. Sixty-two percent of investors paid in cash in August.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of August fell 3.3 percent to 2.04 million existing homes available for sale, and is now 10.1 percent lower than a year ago (2.27 million) and has declined year-over-year for 15 straight months. Unsold inventory is at a 4.6-month supply at the current sales pace, which is down from 4.7 months in July.
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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