21% Decline Forecast for December 2010 Existing Homes Sales

Analysis by Econintersect indicates a continuing decline in existing home sales YoY based on the pending home sales data released by the National Association of Realtors.  The NAR, using rose colored glasses and innovative seasonal adjustment techniques, has implied the opposite.  The headlines for the November 2010 pending home sales:

Pending home sales rose again in November, with the broad trend over the past five months indicating a gradual recovery into 2011, according to the National Association of REALTORS®.

The Pending Home Sales Index, a forward-looking indicator, rose 3.5 percent to 92.2 based on contracts signed in November from a downwardly revised 89.1 in October. The index is 5.0 percent below a reading of 97.0 in November 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said historically high housing affordability is boosting sales activity. “In addition to exceptional affordability conditions, steady improvements in the economy are helping bring buyers into the market,” he said. “But further gains are needed to reach normal levels of sales activity.”

“If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume,” Yun said. “Credit remains tight, but if lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy.”

The 30-year fixed-rate mortgage is forecast to rise gradually to 5.3 percent around the end of 2011; at the same time, unemployment should drop to 9.2 percent.

For perspective, Yun said that the U.S. has added 27 million people over the past 10 years. “However, the number of jobs is roughly the same as it was in 2000 when existing-home sales totaled 5.2 million, which appears to be a sustainable figure given the current level of employment,” he explained.

“All the indicator trends are pointing to a gradual housing recovery,” Yun said. “Home price prospects will vary depending largely upon local job market conditions. The national median home price, however, is expected to remain stable even with a continuing flow of distressed properties coming onto the market, as long as there is a steady demand of financially healthy home buyers.”

Existing-home sales are projected to rise about 8 percent to 5.2 million in 2011 from 4.8 million in 2010, with an additional gain of 4 percent in 2012. The median existing-home price could rise 0.6 percent to $173,700 in 2011 from $172,700 in 2010, which was essentially unchanged from 2009.

“As we gradually work off the excess housing inventory, supply levels will eventually come more in-line with historic averages, and could allow home prices to rise modestly in the range of 2 to 3 percent in 2012,” Yun said.

Econintersect uses unadjusted data in most of its analysis – and that is the case for NAR produced data here.  The graph below uses a one month offset on the pending home sales data, and graphs it against the unadjusted NAR home sales data.

The above graph shows the YoY trend lines between December 2008, December 2009, and Econintersect’s projected 326,000 existing home sales for December.  Using this methodology, last month Econintersect had projected November existing home sales at 360,000 – and the actual November existing home sales were 353,000.

In December 2009, existing home sales were 413,000 – and this December 2010 projected home sales of 326,000 represents a decline of 21% YoY.

There is no truth that there is an “improvement” or “gradual recovery” of any kind underway in existing home sales.  This absence of buyers will only tend to put downward pressure on home prices.  The NAR manipulation of the data is based on no more than wishful thinking.

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