Written by Steven Hansen
The headline existing home sales declined relative to last month with the NAR stating “Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market”.
Analyst Opinion of Existing Home Sales
We are now in the “pandemic normal” – and it seems home sales are on a solid growth footing but note that inventory levels are extremely low limiting how many properties can be sold.
We consider this report about the same as last month.
Econintersect Analysis
- The unadjusted sales rate of growth accelerated 4.4 % month-over-month, up 41.9 % year-over-year – sales growth rate trend slowed using the 3-month moving average.
- The unadjusted price rate of growth accelerated by 3.6 % month-over-month, up 17.0 % year-over-year
- The homes for sale unadjusted inventory accelerated 0.6 % this month compared to last month and is down 20.6 % year-over-year
- Sales down 0.9 % month-over-month, up 12.3 % year-over-year (reported last month +44.6 % year-over-year – all due to comparisons to the lockdown period one year ago)
- Median prices up 23.6 % year-over-year
- The market (from Econoday) expected an existing home sales level of 5.600 M to 6.000 M (consensus 5.715 M) with a reported value of 5.800 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:
Home sales fell moderately in May and are now approaching pre-pandemic activity. Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market.
The market’s outlook, however, is encouraging. Supply is expected to improve, which will give buyers more options and help tamp down record-high asking prices for existing homes.
The appeal of vacation homes has certainly grown during the pandemic, especially among employees permitted to work from home. As businesses decide new guidelines for remote workers, even allowing permanent remote options in some cases, look for vacation homes to remain a popular option.
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 $350,300, up 23.6% from May 2020 ($283,500), as every region registered price increases. This is a record high and marks 111 straight months of year-over-year gains since March 2012.
According to the NAR;
First-time buyers were responsible for 31% of sales in May, also even with April but down from 34% in May 2020. NAR’s 2020 Profile of Home Buyers and Sellers – released in late 20204 – revealed that the annual share of first-time buyers was 31%.
Individual investors or second-home buyers, who account for many cash sales, purchased 17% of homes in May, even with April and up from 14% in May 2020. All-cash sales accounted for 23% of transactions in May, down from 25% in April and up from 17% in May 2020.
Unadjusted Inventories are below the levels of one year ago.
Total housing inventory3 at the end of May amounted to 1.23 million units, up 7.0% from April’s inventory and down 20.6% from one year ago (1.55 million). Unsold inventory sits at a 2.5-month supply at the present sales pace, marginally up from April’s 2.4-month supply but down from 4.6-months in May 2020.
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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