Existing Home Sales: Raining On the Parade

From the real estate cheerleaders at the National Association of Realtors® (NAR) with their March 2011 release of sales data:

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 3.7 percent to a seasonally adjusted annual rate of 5.10 million in March from an upwardly revised 4.92 million in February, but are 6.3 percent below the 5.44 million pace in March 2010. Sales were at elevated levels from March through June of 2010 in response to the home buyer tax credit.

Lawrence Yun, NAR chief economist, expects the improving sales pattern to continue. “Existing-home sales have risen in six of the past eight months, so we’re clearly on a recovery path,” he said. “With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain – primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments as a percent of income have been at record lows.”

No question the spring effect in real estate is underway.  In the springtime, prices rise and sales volumes increase.  The question remain, how are sales in comparison to the past.  The NAR uses seasonal adjustment technology which would make the financial industry’s accounting standards seem conservative.

Econintersect evaluates using unadjusted data – and the method of comparison is to compare data year-over-year (YoY).

As evidenced from the above graph, sales are down YoY – although better than the sales levels in 2008 and 2009.  It could be argued that the high sales level in 2010 was due to the first time homebuyer’s stimulus which expired in June 2010.  Here the NAR argues:

“Although home sales are coming back without a federal stimulus, sales would be notably stronger if mortgage lending would return to the normal, safe standards that were in place a decade ago – before the loose lending practices that created the unprecedented boom and bust cycle,” Yun explained.

“Given that FHA and VA government-backed loan programs turned a modest profit over to the U.S. Treasury last year, and have never required a taxpayer bailout, we believe low-downpayment loans should continue to be available for those consumers who have demonstrated financial responsibility and are willing to stay well within their budget. Raising the downpayment requirement would unnecessarily deny credit to many worthy middle-class families and veterans,” Yun said.

Hummm…..    Interesting argument, but there is little evidence FHA or VA is out of the woods.  The real danger to the mortgage market is the continuing decline of home values – this month, the NAR says:

The national median existing-home price3 for all housing types was $159,600 in March, down 5.9 percent from March 2010. Distressed homes – typically sold at discounts in the vicinity of 20 percent – accounted for a 40 percent market share in March, up from 39 percent in February and 35 percent in March 2010.

The NAR further described the makeup of the current market:

A parallel NAR practitioner survey2 shows first-time buyers purchased 33 percent of homes in March, compared with 34 percent of homes in February; they were 44 percent in March 2010.

All-cash sales were at a record market share of 35 percent in March, up from 33 percent in February; they were 27 percent in March 2010. Investors accounted for 22 percent of sales activity in March, up from 19 percent in February; they were 19 percent in March 2010. The balance of sales were to repeat buyers.

Here the NAR is honest – and did not hype that unadjusted home prices which rose from $202,300 to $207,000 – a normal spring price jump.  This is a 3.5% YoY decline.  Econintersect uses a 3 month rolling average of NAR data to make it comparable to other home price indexes.

According the NAR data, home prices are now in double-dipping being lower than any point since the housing crisis began.   But that is not saying home prices are not rising (a normal spring time phenomenon).  Altos Research does a good job on real time prices posted the following graphic:

The NAR’s comments on inventory:

Total housing inventory at the end of March rose 1.5 percent to 3.55 million existing homes available for sale, which represents an 8.4-month supply at the current sales pace, compared with a 8.5-month supply in February.

Econintersect would add that inventory is slightly down YoY – but as the sales volumes are also down YoY – the month supply is larger YoY.

Overall, there are NO trend lines indicating this housing crisis is coming to a close.

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