Written by Steven Hansen
The headline existing home sales growth “slowed” with the authors saying “a solid economy and job market should be generating a much stronger sales pace than what has been seen so far this year“. Our analysis shows home sales are in contraction year-over-year.
Analyst Opinion of Existing Home Sales
The rolling averages have been slowing since the beginning of 2017. The rolling averages remain marginally in contraction. Housing inventory is at historical lows for Mays – and if you do not have enough houses for sale – then that means home sales cannot improve.
Econintersect Analysis
- Unadjusted sales rate of growth decelerated 6.3 % month-over-month, down 3.4 % year-over-year – sales growth rate trend declined using the 3 month moving average.
- Unadjusted price rate of growth decelerated 0.3 % month-over-month, up 3.1 % year-over-year – price growth rate trend marginally slowed using the 3 month moving average.
- The homes for sale unadjusted inventory improved this month compared to last month, but remains historically low for Mays, and is down 6.1 % from inventory levels one year ago).
- Sales down 0.4 % month-over-month, down 3.0 % year-over-year.
- Prices up 4.9 % year-over-year
- The market expected annualized sales volumes of 5.500 M to 5.640 M (consensus 5.520 million) vs the 5.43 million reported.
The graph below presents unadjusted home sales volumes.
Here are the headline words from the NAR analysts:
Lawrence Yun, NAR chief economist, says a solid economy and job market should be generating a much stronger sales pace than what has been seen so far this year. “Closings were down in a majority of the country last month and declined on an annual basis in each major region,” he said. “Incredibly low supply continues to be the primary impediment to more sales, but there’s no question the combination of higher prices and mortgage rates are pinching the budgets of prospective buyers, and ultimately keeping some from reaching the market.”
“Inventory coming onto the market during this year’s spring buying season – as evidenced again by last month’s weak reading – was not even close to being enough to satisfy demand,” added Yun. “That is why home prices keep outpacing incomes and listings are going under contract in less than a month – and much faster – in many parts of the country.”
“The abrupt hike in mortgage rates this spring, along with price appreciation and competition being the strongest in the entry-level part of the market, is why first-time buyers are not as active as they should be and their participation remains below its historical average,” said Yun.
“Realtors® in many parts of the country say their seller clients are dealing with a seesaw of emotions when deciding to put their home on the market,” said NAR President Elizabeth Mendenhall, a sixth-generation Realtor® from Columbia, Missouri and CEO of RE/MAX Boone Realty. “While they’re thrilled that they will immediately find multiple buyers interested in their listing, many fear they’ll have extreme difficulty finding another home to buy. Some have even decided to hold off until inventory conditions start improving, which is actually only exacerbating supply shortages.”
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 – however a slowing growth trend is developing.
Econintersect does a more complete analysis of home prices with the Case-Shiller analysis.
The home price situation according to the NAR:
The median existing-home price2 for all housing types in May was $264,800, an all-time high and up 4.9 percent from May 2017 ($252,500). May’s price increase marks the 75th straight month of year-over-year gains.
According to the NAR;
First-time buyers were 31 percent of sales in May, which is down from 33 percent both last month and a year ago. NAR’s 2017 Profile of Home Buyers and Sellers – released in late 2017 – revealed that the annual share of first-time buyers was 34 percent.
All-cash sales were 21 percent of transactions in May, which is unchanged from April and down from 22 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in May, unchanged from last month and down from 16 percent a year ago.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of May climbed 2.8 percent to 1.85 million existing homes available for sale, but is still 6.1 percent lower than a year ago (1.97 million) and has fallen year-over-year for 36 consecutive months. Unsold inventory is at a 4.1-month supply at the current sales pace (4.2 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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