Realtors Understate Existing Home Sales Decline

According to the National Association of Realtors (NAR), home sales fell 2.2% month-over-month (MoM) in October 2010.  Their statement read in part:

Existing-home sales retreated in October on the heels of two strong monthly gains, according to the National Association of REALTORS®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 2.2 percent to a seasonally adjusted annual rate of 4.43 million in October from 4.53 million in September, and are 25.9 percent below the 5.98 million-unit level in October 2009 when sales were surging prior to the initial deadline for the first-time buyer tax credit.

Year-to-date there were 4.149 million existing-home sales, down 2.9 percent from 4.272 million at this time in 2009.

Lawrence Yun, NAR chief economist, said the recent sales pattern can be expected to continue. “The housing market is experiencing an uneven recovery, and a temporary foreclosure stoppage in some states is likely to have held back a number of completed sales. Still, sales activity is clearly off the bottom and is attempting to settle into normal sustainable levels,” he said. “Based on current and improving job market conditions, and from attractive affordability conditions, sales should steadily improve to healthier levels of above 5 million by spring of next year.”

The NAR’s data sheets show sales are down 25.9% (seasonally adjusted) and 27.9% (unadjusted) year-over-year. The year to date sales used in the press release are clearly understating what is going on in home sales.  Yah gotta wonder what motivates people to present analysis that is completely misleading.

This is the worst set of October data since the housing market went into crisis in 2006.  In fact, the home sales crash began with the July 2010 data. The amount of homes for sale declined (as is normal seasonally).  However, looking at YoY data – home inventories are higher then last year.

Using the unadjusted data comparing home sales volumes to inventory, the months of home supply to clear inventories rose from 10.6 months to 10.8 months.  The press release stated there was currently a “10.5-month supply at the current sales pace, down from a 10.6-month supply in September.”

Home sales volumes effect home prices.  The economic dynamic would generally be the slower the sales volume – the more competitive the prices would be for existing homes.  The NAR press release stated:

The national median existing-home price for all housing types was $170,500 in October, down 0.9 percent from October 2009. Distressed homes accounted for 34 percent of sales in October, compared with 35 percent in September and 30 percent of sales in October 2009.

The unadjusted data shows home prices were up 0.7% YoY.  To remove the noise from the data, and to make it compatible with Case-Shiller – Econintersect uses a 3 month moving average which graphs out as follows:

The current foreclosure crisis is impacting home sales.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., clarified that several factors are restraining a housing recovery, even with great affordability conditions. “We’ll likely see some impact from the foreclosure moratorium in the months ahead, but overly tight credit is making it difficult for some creditworthy borrowers to qualify for a mortgage, and we are continuing to deal with a notable share of appraisals coming in below a price negotiated between a buyer and seller,” he said.

“A return to common sense loan underwriting standards would go a long way toward achieving responsible, sustainable homeownership. In addition, all home valuations should be made by competent professionals with local expertise and full access to market data – there remains an elevated level of appraisals that fail to provide accurate valuation, which is causing a steady level of sales to be cancelled or postponed,” Phipps said.

A parallel NAR practitioner survey shows 10 percent of REALTORS® in October report they had a contract cancelled as a result of a low appraisal, and 13 percent report they had a contract delayed; 16 percent said a contract was negotiated to a lower sales price as a result of a low appraisal.

First-time buyers purchased 32 percent of homes in October, unchanged from September, but down from 50 percent a year ago during the initial surge for the first-time buyer tax credit. Investors accounted for 19 percent of transactions in October; they were 18 percent in September and 14 percent in October 2009; the balance of sales were to repeat buyers. All-cash sales were at 29 percent in October, unchanged from September but up from 20 percent a year ago.