Written by Steven Hansen
The headline existing home sales declined relative to last month with the NAR stating “Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.”.
Analyst Opinion of Existing Home Sales
The NAR believes the drop in home sales is a temporary condition because of the coronavirus. Although it is possible the housing end of the economy could spring back quickly – the depth of the economic contraction will have significant impacts down the line. We are now in the “pandemic normal”.
Home prices declined again but maybe next month we will see a fuller effect from the coronavirus.
We consider this report weaker than last month.
Please be reminded that all homes SOLD in May likely were under contract in February, March, and April. We expect the decline in home sales to continue next month also before recovery begins.
Econintersect Analysis
- The unadjusted sales rate of growth decelerated 13.2 % month-over-month, down 31.4 % year-over-year – sales growth rate trend decelerated using the 3-month moving average.
- The unadjusted price rate of growth decelerated by 3.8 % month-over-month, up 1.5 % year-over-year
- The homes for sale unadjusted inventory grew this month compared to last month and is down 18.8 % year-over-year
- Sales down 9.7 % month-over-month, down 26.6 % year-over-year (reported last month -17.2 % year-over-year)
- Prices up 2.3 % year-over-year
- The market (from Econoday) expected existing home sales level of 3.500 M to 4.750 M (consensus 4.290 M) with a reported value of 3.91 million
The graph below presents the unadjusted home sales volumes comparing growth in every month.
Here are the headline words from Lawrence Yun, NAR’s chief economist:
Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lockdown and hence the cyclical low point. Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.
New home construction needs to robustly ramp up in order to meet rising housing demand. Otherwise, home prices will rise too fast and hinder first-time buyers, even at a time of record-low mortgage rates.
To remove the seasonality of home prices, here is a year-over-year graph that demonstrates a general improving home price rate of growth.
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 May was $284,600, up 2.3% from May 2019 ($278,200), as prices increased in every region. May’s national price increase marks 99 straight months of year-over-year gains.
According to the NAR;
First-time buyers were responsible for 34% of sales in May, down from 36% in April 2020 and up from 32% in May 2019. NAR’s 2019 Profile of Home Buyers and Sellers – released in late 2019 – 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 May, up from 10% in April 2020 and from 13% in May 2019. All-cash sales accounted for 17% of transactions in May, up from 15% in April 2020 and down from 19% in May 2019.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory at the end of May totaled 1.55 million units, up 6.2% from April, and down 18.8% from one year ago (1.91 million). Unsold inventory sits at a 4.8-month supply at the current sales pace, up from 4.0 months in April and up from the 4.3-month figure recorded in May 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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