Written by Steven Hansen
The headlines for existing home sales growth declined saying “Demand is easily outstripping supply in most of the country and it’s stymieing many prospective buyers from finding a home to purchase”. Our analysis of the unadjusted data agrees.
Analyst Opinion of Existing Home Sales
This was a bad month for home sales which offsets last month’s gains. Even using the rolling averages, this was one of the worst three months in the last year. It is true that low priced inventory is almost non-existent which is the primary cause of the slowdown.
Econintersect Analysis
- Unadjusted sales rate of growth decelerated 12.5 % month-over-month, down 4.5 % year-over-year – sales growth rate trend decelerated using the 3 month moving average.
- Unadjusted price rate of growth decelerated 0.3 % month-over-month, up 5.1 % year-over-year – price growth rate trend decelerated using the 3 month moving average.
- The homes for sale inventory grew this month, remains historically low for Aprils, and is down 9;0 % from inventory levels one year ago).
- Sales down 2.3 % month-over-month, up 1.6 % year-over-year.
- Prices up 6.0 % year-over-year
- The market expected annualized sales volumes of 5.530 M to 5.800 M (consensus 5.650 million) vs the 5.57 million reported.
The graph below presents unadjusted home sales volumes.
Here are the headline words from the NAR analysts:Added Yun, “Bolstered by”Last month’s swift price gains and the remarkably short time a home was on the market are directly the result of the homebuilding industry’s struggle to meet the dire need for more new homes,” said Yun. “A growing pool of all types of buyers is competing for the lackluster amount of existing homes on the market. Until we see significant and sustained multi-month increases in housing starts, prices will continue to far outpace incomes and put pressure on those trying to buy.” strong consumer confidence and underlying demand, home sales are up convincingly from a year ago nationally and in all four major regions despite the fact that buying a home has gotten more expensive over the past year.”
Lawrence Yun, NAR chief economist, says every major region except for the Midwest saw a retreat in existing sales in April. “Last month’s dip in closings was somewhat expected given that there was such a strong sales increase in March at 4.2 percent, and new and existing inventory is not keeping up with the fast pace homes are coming off the market,” he said. “Demand is easily outstripping supply in most of the country and it’s stymieing many prospective buyers from finding a home to purchase.”
“Realtors® continue to voice the frustration their clients are experiencing because of the insufficient number of homes for sale,” added Yun. “Homes in the lower- and mid-market price range are hard to find in most markets, and when one is listed for sale, interest is immediate and multiple offers are nudging the eventual sales prices higher.”
“Mortgage rates have been stuck in a holding pattern in recent months, which is a relief for spring homebuyers,” said Yun. “With price growth showing little sign of slowing, prospective first-time buyers will be the most sensitive to any sudden uptick in rates in the months ahead.”
President William E. Brown says it’s not only prospective homebuyers who are facing housing issues; many middle-income homeowners who benefit from the mortgage interest deduction could be slapped with a tax increase if some of the tax reform proposals currently being discussed go through. A recently released study commissioned by NAR titled, “Impact of Tax Reform Options on Owner-Occupied Housing,”(link is external) estimated taxes would rise on average by $815 each year for homeowners with adjusted gross incomes between $50,000 and $200,000. Furthermore, home values could shrink by an average of more than 10 percent, with areas with higher property taxes or state income taxes experiencing an even steeper decline.
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.
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.
The home price situation according to the NAR:
The median existing-home price2 for all housing types in April was $244,800, up 6.0 percent from April 2016 ($230,900). April’s price increase marks the 62nd straight month of year-over-year gains.
According to the NAR;
Matching the highest percentage since last September, first-time buyers were 34 percent of sales in April, which is up from 32 percent both in March and a year ago. NAR’s 2016 Profile of Home Buyers and Sellers – released in late 20164 – revealed that the annual share of first-time buyers was 35 percent.
All-cash sales were 21 percent of transactions in April, down from 23 percent in March and 24 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in April, unchanged from March but up from 13 percent a year ago. Fifty-seven percent of investors paid in cash in April.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of April climbed 7.2 percent to 1.93 million existing homes available for sale, but is still 9.0 percent lower than a year ago (2.12 million) and has fallen year-over-year for 23 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.6 months a year ago.
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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