Existing Home Sales In June 2011 Much Better than Headlines Suggest

The National Association of Realtors (NAR) says existing home sales “declined 0.8 percent to a seasonally adjusted annual rate of 4.77 million in June from 4.81 million in May, and remain 8.8 percent below the 5.23 million unit level in June 2010.”

Econintersect review of the data suggests that the seasonal adjustment factors used by the NAR are adulterated by government incentives over the last few years.  Next month the NAR will announce a MASSIVE jump in their seasonal adjusted data as a result of the same distortions of recent historical data.

Despite protests to the contrary by the NAR, existing home sales are moving in the patterns of past years where the government was not interfering in marketplace – namely 2007 and 2008.  My argument is simple – this was a normal June, neither up or down from normal.

I suggest the propaganda machine of the NAR is getting reading to flood the market with good news next month, and will start claiming good times are coming.  They are setting the stage.

Lawrence Yun, NAR chief economist, said this is an uneven recovery. “Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month,” he said. “The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year.”

Yun cited other factors in the sales performance. “Pending home sales were down in April but up in May, so we may be seeing some of that mix in closed sales for June. However, economic uncertainty and the federal budget debacle may be causing hesitation among some consumers or lenders.”

Maybe there was a bunch of cancellations – but the correlation to pending home sales does say this argument is bogus as existing home sales came in above the levels that the NAR pending home sales index would suggest.

Home inventory (homes up for sale) according to the NAR:

Total housing inventory at the end of June rose 3.3 percent to 3.77 million existing homes available for sale, which represents a 9.5-month supply at the current sales pace, up from a 9.1-month supply in May.

The unadjusted data tells a different story.  Based on the unadjusted sales in June, there is only a 7.4 months supply of homes, down from 8.0 months supply in May.

As seen on the above graph, inventory levels are the lowest seen recently for Junes.  There seem to be little problem with rising inventory levels.

Econintersect will analyze home prices which are undergoing their seasonal boost when the Case-Shiller home prices are released.  The situation according to the NAR:

The national median existing-home price for all housing types was $184,300 in June, up 0.8 percent from June 2010. Distressed homes – foreclosures and short sales generally sold at deep discounts – accounted for 30 percent of sales in June, compared with 31 percent in May and 32 percent in June 2010.

The unadjusted data is confirming the YoY prices have not declined – and interesting development.  Further bits from the NAR press release:

All-cash transactions accounted for 29 percent of sales in June; they were 30 percent in May and 24 percent in June 2010; investors account for the bulk of cash purchases.

First-time buyers purchased 31 percent of homes in June, down from 36 percent in May; they were 43 percent in June 2010 when the tax credit was in place. Investors accounted for 19 percent of purchase activity in June, unchanged from May; they were 13 percent in June 2010.

The balance of sales was to repeat buyers, which were a 50 percent market share in June, up from 45 percent in May, which appears to be a normal seasonal gain.

The bottom line here is that the data is not bad or good.

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