NAR Existing Home Prices Begin Anticipated Decline

Existing home sales for September 2010 declined.  EconIntersect disagrees with much of the headline spin from the NAR.  These headlines are quoted in part:

Existing-home sales rose again in September, affirming that a sales recovery has begun, according to the National Association of Realtors® (NAR).  Existing-home sales, which are completed transactions that include single-family, town homes, condominiums and co-ops, jumped 10.0 percent to a seasonally adjusted annual rate of 4.53 million in September from a downwardly revised 4.12 million in August, but remain 19.1 percent below the 5.60 million-unit pace in September 2009 when first-time buyers were ramping up in advance of the initial deadline for the tax credit last November.

Lawrence Yun, NAR chief economist, said the housing market is in the early stages of recovery. “A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium. But the overall direction should be a gradual rising trend in home sales with buyers responding to historically low mortgage interest rates and very favorable affordability conditions,” he said.

The national median existing-home price for all housing types was $171,700 in September, which is 2.4 percent below a year ago. Distressed homes accounted for 35 percent of sales in September compared with 34 percent in August; they were 29 percent in September 2009.

“Vacant homes and homes where mortgages have not been paid for an extended number of months need to be cleared from the market as quickly as possible, with a new set of buyers helping the recovery along a healthy path,” Yun said. “Inventory remains elevated and continues to favor buyers over sellers. A normal seasonal decline in inventory is expected through the upcoming months.”

A parallel NAR practitioner survey shows first-time buyers purchased 32 percent of homes in September, almost unchanged from 31 percent in August. Investors were at an 18 percent market share in September, down from 21 percent in August; the balance of purchases were by repeat buyers. All-cash sales were at 29 percent in September compared with 28 percent in August.

Econintersect believes this is the beginning of the often discussed next leg down in home prices.  Other independent data has been forecasting a downward price leg into next year of up to 20%.

Using unadjusted data, home prices have declined 19% YoY, and 8% MoM.  Existing home inventories dropped 2% MoM, but remain elevated at 9% higher than one year ago.  Monthly inventories expressed in months of supply also remain elevated at 10.7, but down from last month’s 12 month supply.  Inventory levels appear normal for this time of year based on the New Normal.

Econintersect believes there is nothing “normal” in the housing market – therefore, the seasonally adjusted data is pretty much meaningless.  The YoY data is influenced by the housing crisis which began in 2006, and distorted by the effects of various government programs intended to stabilize the housing market.

Among the abnormal factors affecting the September sales numbers is the extension of the closing date to September 30 for the spring federal income tax incentives for homes buyers.  Also a possible additional drag may emerge for October from the uncertainty about titles of foreclosed properties and a reduction of the number of foreclosures entering the market if the foreclosure documentation scandal continues.

And finally, of course, if the number of people employed remains at depressed levels the demand for housing will stay depressed.

Related Articles

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The Mortgage Mess  by Yves Smith

A Proposal to Repair the US Mortgage Mess  by William Wheaton

Another View of Housing Price Trends  by Ted Kadavas

What Does a Foreclosure Moratorium Mean for the Housing Market?  by John Lounsbury

Demand for Housing Near an All Time Low  by John Lounsbury

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