Written by Steven Hansen
The headline existing home sales improved with the authors saying “Despite this much-welcomed month over month gain, sales are still down from a year ago, a large reason for which is affordability challenges from higher interest rates”. Our analysis shows home sales three month rolling average is in contraction year-over-year.
Analyst Opinion of Existing Home Sales
The rolling averages have been slowing since the beginning of 2017. This month the rolling averages remained in contraction – but improved. Housing inventory is historically low for Octobers – and if you do not have enough houses for sale – then that means home sales cannot improve. Combine this with higher mortgage rates – and home sales are declining.
Econintersect Analysis
- Unadjusted sales rate of growth decelerated 6.3 % month-over-month, down 2.6 % year-over-year – sales growth rate trend declined using the 3 month moving average.
- Unadjusted price rate of growth up 0.1 % month-over-month, up 2.3 % year-over-year – price growth rate trend again marginally slowed using the 3 month moving average.
- The homes for sale unadjusted inventory declined this month compared to last month, and remains historically low for Septembers,but is up 2.8 % from inventory levels one year ago).
- Sales up 1.4 % month-over-month, down 5.1 % year-over-year (published down 4.1 % YoY last month – note that the NAR says sales were up MoM but the YoY rate of growth worsened).
- Prices up 3.8 % year-over-year – rate of growth is slowing.
- The market (from Econoday) expected annualized sales volumes of 5.100 M to 5.350 M (consensus 5.200 million) vs the 5.22 million reported.
The graph below presents unadjusted home sales volumes.
Here are the headline words from the NAR analysts:
Lawrence Yun, NAR’s chief economist, says increasing housing inventory has brought more buyers to the market. “After six consecutive months of decline, buyers are finally stepping back into the housing market,” he said. “Gains in the Northeast, South and West – a reversal from last month’s steep decline or plateau in all regions – helped overall sales activity rise for the first time since March 2018.”
“As more inventory enters the market and we head into the winter season, home price growth has begun to slow more meaningfully,” said Yun. “This allows for much more manageable, less frenzied buying conditions.”
“Rising interest rates and increasing home prices continue to suppress the rate of first-time homebuyers. Home sales could further decline before stabilizing. The Federal Reserve should, therefore, re-evaluate its monetary policy of tightening credit, especially in light of softening inflationary pressures, to help ease the financial burden on potential first-time buyers and assure a slump in the market causes no lasting damage to the economy,” says Yun.
“Despite this much-welcomed month over month gain, sales are still down from a year ago, a large reason for which is affordability challenges from higher interest rates,” said NAR President John Smaby, a second-generation Realtor® from Edina, Minnesota and broker at Edina Realty. “Prospective buyers looking for their dream home in this market should contact a Realtor® as a first step in the buying process to help them navigate this more challenging environment.”
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 price for all housing types in October was $255,400, up 3.8 percent from October 2017 ($246,000). October’s price increase marks the 80th straight month of year-over-year gains.
According to the NAR;
First-time buyers were responsible for 31 percent of sales in October, down from last month and a year ago (32 percent). NAR’s 2018 Profile of Home Buyers and Sellers – released in late 2018 – revealed that the annual share of first-time buyers was 33 percent.
All-cash sales accounted for 23 percent of transactions in October, up from September and a year ago (21 and 20 percent, respectively). Individual investors, who account for many cash sales, purchased 15 percent of homes in October, up from September and a year ago (both 13 percent).
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of October decreased from 1.88 million in September to 1.85 million existing homes available for sale, but that represents an increase from 1.80 million a year ago. Unsold inventory is at a 4.3-month supply at the current sales pace, down from 4.4 last month and up from 3.9 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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