October 2019 Headline Existing Home Inventory Falls

Written by Steven Hansen

The headline existing home sales improved relative to last month with the authors saying “Historically-low interest rates, continuing job expansion, higher weekly earnings and low mortgage rates are undoubtedly contributing to these higher numbers”.

Econintersect Analysis

• The unadjusted sales rate of growth decelerated 3.1 % month-over-month, up 3.8 % year-over-year – sales growth rate trend accelerated using the 3-month moving average.
• The unadjusted price rate of growth accelerated 0.1 % month-over-month, up 4.7 % year-over-year
• The homes for sale unadjusted inventory declined this month compared to last month but remains historically low for Octobers.

NAR reported:

• Sales up 1.9 % month-over-month, up 4.6 % year-over-year
• Prices up 6.2 % year-over-year – the rate of growth improved this month.
• The market (from Econoday) expected a month-over-month change of -1.5 % to 3.2 % (consensus 2.1 %)

The graph below presents the unadjusted home sales volumes.

Here are the headline words from the NAR analysts:

Lawrence Yun, NAR’s chief economist, said this sales increase is encouraging and he expects added growth in the coming months. “Historically-low interest rates, continuing job expansion, higher weekly earnings and low mortgage rates are undoubtedly contributing to these higher numbers,” said Yun. “We will likely continue to see sales climb as long as potential buyers are presented with an adequate supply of inventory.”

“The issuance of more housing permits is a very positive sign and a good step toward more inventory,” said Yun, citing the latest data for housing starts. “In order to better counter and even slow the increase in housing prices, home builders will have to bring additional homes on the market.”

“It is great to see home sales rise along with an increase in housing permits,” said NAR President Vince Malta, broker at Malta & Co., Inc., in San Francisco, CA. “Both home buyers and the home sellers are being rewarded by these developments, and we see that conditions remain extremely favorable for real estate investment in America.”

To remove the seasonality of home prices, here is a year-over-year graph which demonstrates a general improving home price rate of growth in 2019.

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 October was $270,900, up 6.2% from October 2018 ($255,100), as prices rose in all regions. October’s price increase marks 92 straight months of year-over-year gains.

According to the NAR;

First-time buyers were responsible for 31% of sales in October, down from 33% in September and identical to the 31% recorded in October 2018. NAR’s 2019 Profile of Home Buyers and Sellers – released in late 20194 – revealed that the annual share of first-time buyers was 33%.

Individual investors or second-home buyers, who account for many cash sales, purchased 14% of homes in October 2019 unchanged from September but down from the 15% figure recorded in October 2018. All-cash sales accounted for 19% of transactions in October, up from 17% in August but down from 23% in October 2018.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory3 at the end of October sat at 1.77 million units, down approximately 2.7% from September and 4.3% from one year ago (1.85 million). Unsold inventory sits at a 3.9-month supply at the current sales pace, down from 4.1 months in September and from the 4.3-month figure recorded in October 2018.

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 completely unbiased analysis. Econintersect analyzes using the raw data. Also, note the National Association of Realtors (NAR) new methodology has a 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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