Existing Home Sales Jump in December 2011 – But Not Enough

The National Association of Realtors (NAR) home sales for the month of December 2011 improved over the significant year-over-year (YoY) slowdown of the previous months – and now is only less bad YoY.  Homes sold in December totaled 404,000.  This is significantly larger (almost 25% larger) than the number projected by Econintersect based on pending home sales in November.  Further, the home inventory remains in a cyclical uptrend YoY.

Existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months, according to the National Association of REALTORS®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 12.3 percent to a seasonally adjusted annual rate of 5.28 million in December from an upwardly revised 4.70 million in November, but remain 2.9 percent below the 5.44 million pace in December 2009.

Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

The national median existing-home price2 for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes3 rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

“The modest rise in distressed sales, which typically are discounted 10 to 15 percent relative to traditional homes, dampened the median price in December, but the flat price trend continues,” Yun explained.

Total housing inventory at the end of December fell 4.2 percent to 3.56 million existing homes available for sale, which represents an 8.1-month supply4 at the current sales pace, down from a 9.5-month supply in November.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said buyers are responding to very good affordability conditions despite tight mortgage credit. “Historically low mortgage interest rates, stable home prices, and pent-up demand are drawing home buyers into the market,” Phipps said. “Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.71 percent in December from 4.30 percent in November; the rate was 4.93 percent in December 2009.

A parallel NAR practitioner survey shows first-time buyers purchased 33 percent of homes in December, up from 32 percent in November, but are below a 43 percent share in December 2009.

Investors accounted for 20 percent of transactions in December, up from 19 percent in November and 15 percent in December 2009; the balance of sales were to repeat buyers. All-cash sales were at 29 percent in December, compared with 31 percent in November, but up from 22 percent a year ago. “All-cash sales have been consistently high at about 30 percent of the market over the past six months,” Yun said.

The NAR press release was based on seasonally adjusted data.  The story from the unadjusted data:

December 2010 sales were at the same levels as August.  It does indicate an increasing demand – but one month is not a trend.  Still, home sales volumes are down YoY.

Home prices did fall slightly in December – but the change over the last three months using the NAR data was very slight (less than 0.5%).  In comparing the data to Case-Shiller – it should be noted that the NAR’s data is issued one to two months earlier.

Case-Shiller only uses home sales in its analysis where previous home sales data is available.  The NAR uses all home sales in its analysis.  Econintersect believes both methodologies are acceptable.  It is necessary to recognize the noise factors in these numbers, however.  Case-Shiller is reported as a 3-month moving average and the NAR data is reported as single month data (the graph above converted the NAR data into a 3 month moving average for comparison purposes).

Home inventories are higher then last year.  This has rising inventory level YoY has been persistent since the beginning of the 2Q2010.

Using the unadjusted data, there is 8.8 months of home inventory at current sales rate – down from 10.5 months due to higher volumes.  Inventory supply has been in this 10 months supply range since mid-year.

Econintersect using pending home sales (analysis here) had projected December home sales at 326,000 versus the 404,000 reported.  This is a significant “miss”.  In the past when pending home sales went out of correlation, the following months sales corrected back to maintain the correlation.

Related Articles:

Altos Research:  Home Prices Down 1.63% in December 2010  by Steven Hansen

The Great Debate ©:  Will Housing be a Drag on the Economy in 2011? – Part 1  by John Lounsbury

The Great Debate©:  Will Housing be a Drag on the Economy? – Part 2  by John Lounsbury

21% Decline Forecast for December 2010 Existing Home Sales  by Steven Hansen

Case-Shiller Index Down in December 2010  by Steven Hansen

New Home Sales Remain at Historic Lows  by Steven Hansen