November 2011 Existing Home Sales Continued Improvement, Data Rebenchmarked

Before we can analyze existing home sales, please note the National Association of Realtors (NAR) completely revised this data series this month.

Also released today were periodic benchmark revisions with downward adjustments to sales and inventory data since 2007, led by a decline in for-sale-by-owners. Although rebenchmarking resulted in lower adjustments to several years of home sales data, the month-to-month characterization of market conditions did not change. There are no changes to home prices or month’s supply.

And now the NAR is saying benchmarking will be an annual process, and the 2010 data will need to be benchmarked again next year.  Please read the caveats below for the reasons for the change to the historical existing home sales numbers.  The following graph illustrates the change to the data Econintersect has been reporting – note that the percent change varies.

With the benchmarking out of the way, and based on this new data set, NAR reported:

  • Existing Homes Sales Up 4.0% month-over-month, Up 12.2% year-over-year
  • Existing Home Prices Up 2.1% month-over-month, Down 3.5% year-over-year

Econintersect Analysis:

  • Existing Homes Sales Down 0.9% month-over-month, Up 10.9% year-over-year
  • Existing Home Prices Up 2.2% month-over-month, Down 3.5% year-over-year

Overall, this is the fifth month in a row of increasing home sales volumes year-over-year.

Here are the words from the NAR:

Lawrence Yun, NAR chief economist, said more people are taking advantage of the buyer’s market. “Sales reached the highest mark in 10 months and are 34 percent above the cyclical low point in mid-2010 – a genuine sustained sales recovery appears to be developing,” he said. “We’ve seen healthy gains in contract activity, so it looks like more people are realizing the great opportunity that exists in today’s market for buyers with long-term plans.”

The NAR press release hit again on cancellations causing “poor” numbers.

An elevated level of contract failures continues to hold back a broader sales recovery. Contract failures2 were reported by 33 percent of NAR members in November, unchanged from October but notably above a year ago when it was 9 percent.

Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including lower conforming mortgage loan limits, home inspections and employment losses.

Regardless of cancellation and mortgage availability, home sales volumes remain in an uptrend.

Home prices continue to fall.  Even though the NAR’s home prices actually increased month-over-month, Econintersect uses a 3 month rolling average to evaluate home prices to smooth random fluctuations.

Econintersect will do a more complete analysis of home prices when the Case-Shiller data is released. The situation according to the NAR:

The national median existing-home price5 for all housing types was $164,200 in November, down 3.5 percent from a year ago. Distressed homes – foreclosures and short sales typically sold at deep discounts – accounted for 29 percent of sales in November (19 percent were foreclosures and 10 percent were short sales), compared with 28 percent in October and 33 percent in November 2010.

According to the NAR, all-cash sales accounted for 28% of transactions in October.

All-cash sales accounted for 28 percent of purchases in November; they were 29 percent in October and 31 percent in November 2010. Investors make up the bulk of cash transactions.

Investors purchased 19 percent of homes in November, little changed from 18 percent in October and 19 percent in November 2010. First-time buyers accounted for 35 percent of transactions in November, up from 34 percent in October and 32 percent in November 2010.

Inventories continued to fall.

Total housing inventory at the end of November fell 5.8 percent to 2.58 million existing homes available for sale, which represents a 7.0-month supply4 at the current sales pace, down from a 7.7-month supply in October. “Since setting a record of 4.04 million in July 2007, inventories have trended down and supplies are moving close to price stabilization levels,” Yun said.

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 complete unbiased analysis. Econintersect analyzes only using the raw data.

The NAR has admitted there is an error in their reporting of home sales volumes.

A divergence developed over time between sales reported by MLSs and sales determined by a U.S. Census benchmark; the variance began in 2007. Reasons include growth in MLS coverage areas from which sales data is collected, and geographic population shifts. “It appears that about half of the revisions result solely from a decline in for-sale-by-owners (FSBOs), with more sellers turning to Realtors® to market their homes when the market softened. The FSBO market was overwhelmed during the housing downturn, and since most FSBOs are not reported in MLSs, national estimates of existing-home sales began to diverge based on previous assumptions,

Existing home sales is one area the government does not report data – and it is easy to assume that an organization whose purpose is to paint the housing industry in a good light would inflate their data. However, Econintersect is assuming in its analysis that the NAR numbers are correct.

The NAR’s home price data has been questioned by others also. However, Econintersect analysis shows a very good home price correlation to Case-Shiller, CoreLogic’s HPI, and Altos Research, especially when three-month moving averages are used – as shown in the graph earlier in this article.

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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