Existing Home Sales Growth Continues in August 2012

Written by Steven Hansen

The headlines existing home sales are claiming August is a wonderful month.  Ok, August is not bad, but not as good as July.  This analysis will be worst than the National Association of Realtors more positive seasonal adjusted data.

Econintersect Analysis:

  • Sales down 0.5% month-over-month, Up 11.2% year-over-year
  • Prices up 0.0% month-over-month, Up 7.2% year-over-year

NAR reported:

  • Sales Up 7.8% month-over-month, Up 9.3% year-over-year
  • Prices Up 9.5% year-over-year same ( up 9.4% in July 2012)
  • The market expected annualized sales volumes of 4.55 to 4.58 million (vs the 482 million reported)

Overall, this is the thirteenth 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 strong rate of growth seen since mid-2010 appears to have moderated as shown on the graph below.

Unadjusted Year-over-Year Change in Existing Home Sales Volumes

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The graph below presents unadjusted home sales volumes – my takeaway is that a solid but growing less good “improvement” cycle is underway.

Unadjusted Monthly Home Sales Volumes

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Here are the headline words from the NAR analysts:

Lawrence Yun , NAR chief economist, said favorable buying conditions get the credit. “The housing market is steadily recovering with consistent increases in both home sales and median prices. More buyers are taking advantage of excellent housing affordability conditions,” he said. “Inventories in many parts of the country are broadly balanced, favoring neither sellers nor buyers. However, the West and Florida markets are experiencing inventory shortages, which are placing pressure on prices.”

“The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is testament to the sizable stored-up housing demand that accumulated in the past five years,” Yun added.

NAR President Moe Veissi , broker-owner of Veissi & Associates Inc., in Miami, said some buyers are involuntarily sidelined. “Total sales this year will be 8 to 10 percent above 2011, but some buyers are frustrated with mortgage availability. If most of the financially qualified buyers could obtain financing, home sales would be about 10 to 15 percent stronger, and the related economic activity would create several hundred thousand jobs over the period of a year.”

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.

Comparison of Home Price Indices – Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green line, left axis) and National Association of Realtors (red line, right axis)

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Econintersect will do a more complete analysis of home prices when the Case-Shiller data is released. Please note that Econintersect analysis shows home prices up 7.2% year-over-year. Even so, homes today are more affordable according to the NAR’s Housing Affordability Index.

Unadjusted Home Affordability Index

This affordability index measures the degree to which a typical family can afford the monthly mortgage payments on a typical home.

Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite housing affordability index (COMPHAI) of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the COMPHAI then shows that this family is more able to afford the median priced home.

The home price situation according to the NAR:

The national median existing-home price for all housing types was $187,400 in August, up 9.5 percent from a year ago. The last time there were six back-to-back monthly price increases from a year earlier was from December 2005 to May 2006. The August increase was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.

Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 22 percent of August sales (12 percent were foreclosures and 10 percent were short sales), down from 24 percent in July and 31 percent in August 2011. Foreclosures sold for an average discount of 19 percent below market value in August, while short sales were discounted 13 percent.

According to the NAR, all-cash sales accounted for 31% of transactions.

First-time buyers accounted for 31 percent of purchasers in August, down from 34 percent in July; they were 32 percent in August 2011.

All-cash sales were unchanged at 27 percent of transactions in August; they were 29 percent in August 2011. Investors, who account for most cash sales, purchased 18 percent of homes in August, up from 16 percent in July; they were 22 percent in August 2011.

Inventories are on a slightly growing trend line in 2012.

Total housing inventory at the end August rose 2.9 percent to 2.47 million existing homes available for sale, which represents a 6.1-month supply at the current sales pace, down from a 6.4-month supply in July. Listed inventory is 18.2 percent below a year ago when there was an 8.2-month supply.

The median time on market was 70 days in August, consistent with 69 days in July but down 23.9 percent from 92 days in August 2011. Thirty-two percent of homes sold in August were on the market for less than a month, while 19 percent were on the market for six months or longer.

Unadjusted Total Housing Inventory

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Although Econintersect sees a likely housing bottom, sales in May and June can only be described as strange with volumes “less good”. One would normally 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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3 replies on “Existing Home Sales Growth Continues in August 2012”

  1. Steven,

    Great analysis. A quick question.

    A very few analysts out there cast doubt about the inventory figure. They are quite in the minority right now. One of them is Gary Shilling. Here is his newsletter:


    His has some arguments. Two key points are
    (1) Close to 4 millions vacant units (presumably those foreclosed, or maybe the same as shadow inventory) not counted for sales. That is more than 10 months of supply
    (2) 5 million mortgages are already delinquent or already foreclosed (seems to be different from those 4 million “vacant units”). For those delinquent, a substantial part will be foreclosed at some point. This can add another 1 or 2 millions homes to the inventory.

    Lately I really have not heard much about people talking about “shadow inventory any more. Not sure if they no longer exist, or is simply ignored.

    What’s your opinion? If Shilling is true even by 50%, the real picture is not what everyone sees and believes as now.

  2. imo, shadow inventory is no longer relevant to the lower end housing market. i tend to agree (heaven forbid) with the NAR that there is a shortage of low priced houses.

    as you might know, i do not trust the NAR’s analysis of anything – as it is the fox given the job of watching the hen house.

    a few hears ago i spouted that i believed the USA had 10% too many houses – and i still believe that was an accurate projection. due to population growth of 1% per year, likely we still have 8% too many houses.

    housing is not a pure supply and demand market. owners of existing homes (banks or private citizens) are not willing to sell at any price. i know of no quantitative analysis methodology that factors in human behavior.

    so, i think the real plus shadow inventory is 10 million houses currently (even higher than other pundits). further, i believe there is a growing number of families that would sell in an instant if home prices rose much to get from under the wrong house in the wrong place – and are restrained by negative equity or sales revenue which is inconsistent with what they want to do with the money.

    this obviously will constrain home price rises – but baring a major economic downturn, i think human behavior has drawn a line on further price declines.

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