Written by Steven Hansen
The headline existing home sales declined relative to last month with the NAR stating “The new home construction seems to be coming to the market, but we are still not seeing the amount of construction needed to solve the housing shortage”.
Analyst Opinion of Existing Home Sales
The rolling averages for existing home sales had been improving for the previous 5 months. The rolling averages are now in expansion. This report is weaker than last month.
Econintersect Analysis
- The unadjusted sales rate of growth decelerated 4.0 % month-over-month, down 0.5 % year-over-year – sales growth rate trend decelerated using the 3-month moving average.
- The unadjusted price rate of growth decelerated 0.5 % month-over-month, up 4.0 % year-over-year
- The homes for sale unadjusted inventory declined this month compared to last month and remains historically low for Novembers.
- Sales down 1.7 % month-over-month, up 2.7 % year-over-year
- Prices up 5.4 % year-over-year
- The market (from Econoday) expected existing home sales level of 5.370 M to 5.550 M (consensus 5.450 M) with a reported value of 5.350
The graph below presents the unadjusted home sales volumes.
Here are the headline words from the NAR analysts:
The new home construction seems to be coming to the market, but we are still not seeing the amount of construction needed to solve the housing shortage,” Yun said. “It is time for builders to be innovative and creative, possibly incorporating more factory-made modules to make houses affordable rather than building homes all on-site.”
Yun cited last week’s NAR Real Estate Forecast Summit, in which 14 leading housing and financial industry economists predicted that the U.S. will likely avoid a recession in 2020 while projecting the economy to grow 2% in the coming year.
“The consensus was that mortgage rates may rise, but only incrementally,” Yun said. “I expect to see home price affordability improvements, too. This year we witnessed housing costs grow faster than income, but the expectation is for prices to settle at a more reasonable level in the coming year in line with average hourly wage growth of 3% on a year-over-year basis.”
“I would encourage would-be buyers to take advantage of historically-low mortgage rates, which make a home purchase more affordable, particularly when home prices are rising,” said NAR President Vince Malta, broker at Malta & Co., Inc., in San Francisco, California.
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 $271,300, up 5.4% from November 2018 ($257,400), as prices rose in all regions. November’s price increase marks 93 straight months of year-over-year gains.
According to the NAR;
First-time buyers were responsible for 32% of sales in November, essentially hovering at the 31% seen in October and 33% in November 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 16% of homes in November 2019, up from both 14% in October and from 13% in November 2018. All-cash sales accounted for 20% of transactions in November, about even with 19% in October and 21% in November 2018.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory3 at the end of November totaled 1.64 million units, down approximately 7.3% from October and 5.7% from one year ago (1.74 million). Unsold inventory sits at a 3.7-month supply at the current sales pace, down from 3.9 months in October and from the 4.0-month figure recorded in November 2018. Unsold inventory totals have declined for five consecutive months, constraining home sales.
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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