November 2016 Headline Existing Home Sales Big Increase

Written by Steven Hansen

The headlines for existing home sales improved and say “a big surge in the Northeast and a smaller gain in the South pushed existing-home sales up in November for the third consecutive month“. Our analysis of the unadjusted data agrees – and the quantity of home sales this month are nearly back to pre-Great Recession levels..

Econintersect Analysis

• Unadjusted sales rate of growth accelerated 18.0 % month-over-month, up 18.2 % year-over-year – sales growth rate trend significantly improved using the 3 month moving average.
• Unadjusted price rate of growth accelerated 0.1 % month-over-month, up 4.9 % year-over-year – price growth rate trend improved using the 3 month moving average.
• The homes for sale inventory significantly declined this month, and remains historically low for Novembers, and is down 9.3 % from inventory levels one year ago).

NAR reported:

• Sales up 0.7 % month-over-month, up 15.4 % year-over-year.
• Prices up 6.8 % year-over-year
• The market expected annualized sales volumes of 5.400 M to 5.650 million (consensus 5.350 million) vs the 5.61 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 it’s been an outstanding three-month stretch for the housing market as 2016 nears the finish line. “The healthiest job market since the Great Recession and the anticipation of some buyers to close on a home before mortgage rates accurately rose from their historically low level have combined to drive sales higher in recent months,” he said. “Furthermore, it’s no coincidence that home shoppers in the Northeast — where price growth has been tame all year — had the most success last month.”

“Existing housing supply at the beginning of the year was inadequate and is now even worse heading into 2017,” added Yun. “Rental units are also seeing this shortage. As a result, both home prices and rents continue to far outstrip incomes in much of the country.”

First-time buyers in higher priced cities will be most affected by rising prices and mortgage rates next year and will likely have to stretch their budget or make compromises on home size, price or location,” said Yun.

NAR President William E. Brown says consumers looking to buy in 2017 should find a Realtor®, seek a preapproval from a lender and start their home search now. “It’s never too early to begin viewing listings online and in person with a Realtor® to identify what’s available within the budget and where,” said Brown. “There are fewer available homes during the winter months but also fewer buyers. With mortgage rates and prices expected to increase as the year goes on, the first few months of 2017 could be an opportune time close on a home.”

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 November was $234,900, up 6.8 percent from November 2015 ($220,000). November’s price increase marks the 57thconsecutive month of year-over-year gains.

According to the NAR, all-cash sales accounted for 21 % of sales this month.

First-time buyers were 32 percent of sales in November, which is down from 33 percent in October but up from and 30 percent a year ago. NAR’s 2016 Profile of Home Buyers and Sellers — released in November 5 — revealed that the annual share of first-time buyers was 35 percent (32 percent in 2015), which is the highest since 2013 (38 percent).

All-cash sales were 21 percent of transactions in November, down from 22 percent in October and 27 percent a year ago. Individual investors, who account for many cash sales, purchased 12 percent of homes in November, down from 13 percent in October and 16 percent a year ago. Fifty-eight percent of investors paid in cash in November, which matches the lowest share since August 2009.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory 4 at the end of November dropped 8.0 percent to 1.85 million existing homes available for sale, and is now 9.3 percent lower than a year ago (2.04 million) and has fallen year-over-year for 18 straight months. Unsold inventory is at a 4.0-month supply at the current sales pace, which is down from 4.3 months in October.

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 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.

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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