January 2020 Headline Existing Home Sales Drops But Still Growing At A Rapid Pace

Written by Steven Hansen

The headline existing home sales declined relative to last month with the NAR stating “The outlook for 2020 home sales is promising despite the drop in January. Existing-home sales are off to a strong start at 5.46 million”.

Econintersect Analysis

• The unadjusted sales rate of growth decelerated 3.5 % month-over-month, up 11.6 % year-over-year – sales growth rate trend significantly accelerated using the 3-month moving average.
• The unadjusted price rate of growth decelerated by 0.8 % month-over-month, up 5.1 % year-over-year
• The homes for sale unadjusted inventory insignificantly grew this month compared to last month and remains historically low.

NAR reported:

• Sales down 1.3 % month-over-month, up 9.6 % year-over-year
• Prices up 6.8 % year-over-year
• The market (from Econoday) expected existing home sales level of 5.300 M to 5.600 M (consensus 5.450 M) with a reported value of 5.46

The graph below presents the unadjusted home sales volumes.

Here are the headline words from Lawrence Yun, NAR’s chief economist:

The outlook for 2020 home sales is promising despite the drop in January. Existing-home sales are off to a strong start at 5.46 million. The trend line for housing starts is increasing and showing steady improvement, which should ultimately lead to more home sales.

Mortgage rates have helped with affordability, but it is supply conditions that are driving price growth.

It is good to see first-time buyers slowly stepping into the market. The rise in the homeownership rate among the younger adults, under 35, and minority households means an increasing number of Americans can build wealth by owning real estate. Still, in order to further expand opportunities, significantly more inventory and home construction are needed at the affordable price points.

To remove the seasonality of home prices, here is a year-over-year graph that 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 January was $266,300, up 6.8% from January 2019 ($249,400), as prices increased in every region. January’s price increase marks 95 straight months of year-over-year gains.

According to the NAR;

First-time buyers were responsible for 32% of sales in January, up from 31% in December and up from 29% in January 2019. 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 17% of homes in January, equal to December 2019 and up slightly from 16% in January 2019. All-cash sales accounted for 21% of transactions in January, up from 20% in December but down from 23% in January 2019.

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory3 at the end of January totaled 1.42 million units, up 2.2% from December, but down 10.7% from one year ago (1.59 million). The housing inventory level for January is the lowest level since 1999. Unsold inventory sits at a 3.1-month supply at the current sales pace, up from the 3.0-month figure recorded in December and down from the 3.8-month figure recorded in January 2019.

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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