Strange Existing Home Sales Data in March 2012

Written by Steven Hansen

Econintersect believes we are at or near the bottom of the existing home sales deterioration – but using the March National Association of Realtors (NAR) data, one would be hard pressed to prove this point.  Sales volumes, although up year-over-year, were significantly “less good”.

The three month rolling average of home prices did improve.

NAR reported in March 2012:

  • Sales Down 2.6% month-over-month, Up 5.2% year-over-year
  • Prices Up 5.3% month-over-month, Up 2.5% year-over-year
  • The market expected annualized sales volumes of 4.62  to 4.68 million (vs the 4.48 reported)

Econintersect Analysis:

  • Sales Down 9.4% month-over-month, Up 4.0% year-over-year
  • Prices Up 2.3% month-over-month, Up 2.0% year-over-year

Overall, this is the ninth month in a row of improving year-over-year home sales volumes (Econintersect analysis of raw data). Since mid 2011, home sales have been positively growing year-over-year.  However, the March improvement was unexpected weak – and arguably broke to the downside of the trend improvement channel as shown on the graph below.

Here are the words from the NAR:

“We were expecting a seasonal increase in home listings, but a lack of inventory has suddenly become an issue in several markets with not enough homes for sale in relation to buyer interest,” Yun said.  “Home sales could be held back because of supply factors and not by demand – we’re already seeing this in the Western states and in South Florida.”

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said buyer traffic is up.  “Our members are reporting an increase in foot traffic from a year ago, but more importantly, home shoppers this year are much more serious about finding the right home and making an offer,” he said.  “Stabilizing home prices and historically favorable affordability conditions are giving buyers more confidence, and Realtors® have become more optimistic since the beginning of the year from the positive shift in buyer patterns.”

The graph below does not use seasonally adjusted data in displaying home prices.  As the first reporter of home prices, notice the uptick in the NAR’s home prices.

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 price for all housing types was $163,800 in March, up 2.5 percent from March 2011.  Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 29 percent of March sales (18 percent were foreclosures and 11 percent were short sales), compared with 34 percent in February and 40 percent in March 2011.

Foreclosures typically sold for an average 19 percent below market price in March, while short sales were discounted 16 percent.

According to the NAR, all-cash sales accounted for 32% of transactions.

All-cash sales slipped to 32 percent of transactions in March from 33 percent in February; they were 35 percent in March 2011.  Investors account for the bulk of cash transactions.

Investors purchased 21 percent of homes in March, down from 23 percent in February and 22 percent in March 2011.  First-time buyers accounted for 33 percent of transactions in March; they were 32 percent in February and 33 percent in March 2011.

Inventories fell this month.

Total housing inventory at the end of March declined 1.3 percent to 2.37 million existing homes available for sale, which represents a 6.3-month supply at the current sales pace, the same as in February.  Listed inventory is 21.8 percent below a year ago and well below the record of 4.04 million in July 2007.

Although Econintersect sees a housing bottom, sales in March can only be described as strange with volumes “less good”.  One would expect a growing demand (not a weakening one at the bottom).

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.  Also note the National Association of Realtors (NAR) new methodology now has moderate back revision to the data – so it is best to look at trends, and not get too excited about each month’s release.

The NAR re-benchmarked their data in their November 2011 existing home sales data release reducing their recent reported home sales volumes by an average of 15%. The NAR stated benchmarking will be an annual process, and the 2010 data will need to be benchmarked again next year.

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.

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 LPS, 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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