Existing-home sales are up 2.1 percent in October from the previous month and home prices are up more than 11 percent from this same time last year, to $178,600. Sales are being driven by strengthening fundamentals—the improving jobs picture, rising rental rates, continuing low interest rates and housing affordability—and prices are gaining on reduced supply.
NAR Chief Economist Lawrence Yun said yesterday in his national press conference in Washington to release the association’s latest sales figures says inventory shortages are cropping up in markets across the country. Although that’s good for home price gains in the short-term, in the long-term it’s a negative that reflects weak home construction by builders. Ideally, supply growth will increase to provide a healthy counterbalance to demand so prices can rise at a sustainable pace.
In any case, due to the steady price gains home owners have seen, total home owner equity has risen by $760 billion so far this year. Should home prices rise 5 percent for the year, equity gains could reach $1 trillion by year’s end, a healthy development for the economy, Yun says.
Access NAR’s press release on the latest home sale numbers.
Home sales dropped a bit over the last month but they remain strong compared to this time last year and price gains remain robust.
NAR Chief Economist Lawrence Yun released NAR’s September 2012 existing-home sales figures on Friday last week, and they’re down 1.7 percent from August figures, to an annual sales pace of 4.75 million units. That’s still 11 percent above where they were last year, suggesting that the long-term upward trend continues.
The upward trend of prices continues as well. The median price, at $183,900, is up a strong 11.3 percent from year-ago levels. Part of that increase stems from the mix of houses being sold today. We’re seeing fewer distressed sales as a percentage of the market, and prices are reflecting that more favorable mix. But Yun said on Friday that the increase is also reflective of genuine price appreciation. Indices that look at price changes of the same assets over time, like Case-Shiller and the Federal Housing Finance Agency price index, are showing similar price increases. So, the gains aren’t just from a change in the mix of homes being sold; they’re also from asset appreciation, Yun said.
Two other notable data points from Friday’s release:
1. Inventory is dropping, so you can expect upward price pressure to continue. The supply of homes available for sale is now at 5.9 months, the first time in a number of years the number has dropped below 6 months. Total inventory stands at 2.32 million units.
2. Time on market has dropped to a median 70 days, with roughly a third of all sales closing in 30 days or so. At this time last year, the median time on market was more than 100 days, so the trend is positive.
You can learn more in the 5-minute video from Yun’s press conference above.
Access NAR’s news release on the latest figures.
The Wall Street Journal today says the housing market nationally is bottoming out, the essential first step before it can start rising again. But the Journal is a little pessimistic that the upward bounce is coming any time soon. It says the market could drag along the bottom for a while, thanks in part to the uncertainty over how banks’ “shadow inventory” will be handled over the next few years and the continuing trouble borrowers are facing getting financing.
“There are more signs than there were a year ago that housing isn’t getting any worse,” the paper says, “and that it may slowly be getting better.”
But how slowly? The Journal says prices nationally are still falling. It cites February data from CoreLogic that prices fell 2 percent from a year earlier. Recent Case-Shiller data also show prices continuing to fall. NAR data, which draws directly from MLS data, differs from these two data sets. In February it showed prices with a slight, 0.3 percent gain, and in March with a more substantial 2.5 percent gain. These figures take into account distressed sales, which comprise about a third of all existing-home sales today and have a dampening effect on prices, so price gains would be higher if these sales were taken out of the data.
Time will tell which data set is more accurate. Several months will need to go by before we can look back and see what’s actually happening today with prices, but in any case, NAR Chief Economist Lawrence Yun is optimistic about what the market will look like later this year.
First, distressed homes are getting snapped up by bargain hunters, both investors and owner -occupants. That softens the impact that banks’ shadow inventory will have on markets in the months ahead as more properties are released. Second, inventory levels are down to six months, which historically has been the level at which prices stabilize.
To be sure, inventories have been down to six months only for a short amount of time, so it’s too soon to say there’s a trend here. But if inventories stay down at this level for several more months, the stage could be set for better news on prices.
One point made by the Journal that is certainly the case is the continuing trouble borrowers are having getting loans. As the paper says, banks are maintaining tight credit standards in part because of their concerns that Fannie Mae and other secondary market entities will make them buy back any loans that go bad. So, their standards are ratcheted up, and that’s causing even creditworthy borrowers headaches.
It’s safe to say that, until the difficulty of getting financing eases back to a more normal level, even today’s brightening picture can’t be taken for granted, and the Journal’s concerns about a prolonged stay at the bottom could prove true.
When NAR releases its existing-home sales (EHS) numbers next week for the month of November, the figures will reflect what’s known as a rebenchmarking. This is an adjustment that researchers do periodically to help ensure the continued accuracy of their data sets. The federal government does it with its data sets, including its all-important calculation of the U.S. gross domestic product (GDP). Research entities do it with their data sets. And NAR has been doing it with its EHS numbers since it launched that data series in the late 1960s.
With this rebenchmarking, NAR is using a U.S. Census survey called the American Community Survey to calculate the number of annual home sales and create a new benchmark, or baseline, for tracking increases and decreases in existing-home sales. (It doesn’t just use MLS data because that data only captures home sales listed through the MLS, which is most but not all sales.) It then adjusts its baseline based on a number of assumptions, including the portion of sales that are for-sale-by-owner (FSBO) transactions.
Against this new benchmark it calculates monthly updates using MLS data. Thus, if sales go up 8 percent in the sample of MLS data, then NAR increases the sales against the American Community Survey benchmark by 8 percent.
This is the same process NAR used the last time it rebenchmarked its EHS data, about 10 years ago, although for that earlier rebenchmarking it didn’t use the American Community Survey; it used data from the decennial census long form. NAR used the long form because it provides detailed information from which NAR can base accurate home-sale estimates, and it would have used that form again this time but the U.S. Census Bureau stopped using the long form after the 2000 decennial census.
For consumers, the most important thing to know is the rebenchmarking has no impact on home price data. The changes only impact the number of sales. Nor is there any impact on local MLS home-sale figures. The only change is to the reporting of home sales at the national level.
In the video above, NAR Chief Economist Lawrence Yun talks with REALTOR® Magazine Editor in Chief Stacey Moncrieff about the why and the how of the rebenchmarking process. You can also learn more in a detailed Q&A he prepared.
Other resources on this topic:
By Robert Freedman, senior editor, REALTOR® Magazine
In response to media coverage about the calculation of existing-home sales, NAR Chief Economist Lawrence Yun yesterday walked reporters through the association’s methodology for calculating its monthly EHS figures as part of his regularly scheduled press conference in Washington.
NAR each month collects home-sale data from a sampling of MLSs around the country. That monthly data is compared against the previous month’s data to derive the upward or downward shift in the home sales pace. Thus, if the participating MLSs report 5 percent fewer home sales, when all of their data is tabulated on a national basis and seasonal variations are accounted for, then NAR’s monthly EHS report reflects that.
To anchor its data, NAR every 10 years compares its figures to the findings of the decennial census, which up until 2000 sent out a “long-form” questionnaire to U.S. households to generate rich data sets on household activity, including home buying. In 2000, that long-form census identified the home sales figure at 5.2 million, and NAR “rebenchmarked” its EHS data sample based on that number.
Such periodic adjustments are standard among researchers to maintain the accuracy of any data series that relies on extrapolations from a baseline. In 2000, NAR adjusted its data by 13 percent to bring it into alignment with the census data.
NAR is now developing a new way to rebenchmark its data, because the Census Bureau no longer sends out its long-form questionnaire as part of its decennial census, leaving NAR without that data set to use as its rebenchmarking standard.
Yun said he is convening a panel of some 20-30 economists and others who follow home sales on a regular basis for their input as NAR puts in place its new rebenchmarking procedure. Depending on the procedure that’s used, NAR could rebenchmark its MLS data samples more frequently, possibly as frequently as every two years or even every year.
More frequent rebenchmarking could help minimize the statistical “drift” that occurs in any regular sampling of data. Yun said he can’t predict how much, or in what direction, EHS data has drifted since the 2000 rebenchmarking, but that some degree of drift is expected. Some MLSs have consolidated, markets are seeing fewer for-sale-by-owner transactions, and some sales might be appearing in more than one jurisdiction because agents are increasingly listing homes in more than one MLS: all of these are possible variables that could lead to drift in EHS data trends, Yun said.
Similar kinds of “statistical noise” leads to drift in home-sale data tracked by other entities, Yun said. For example, data samples that rely on FHA, Fannie Mae, and Freddie Mac closings don’t capture all-cash transactions, which today comprise more than a third of home sales. Mortgage purchase applications, though a very useful metric for directional movement on a week-to-week basis, had a huge upward drift in the 1990s, which would have implied quadrupling of home sales during that decade. And data that relies on court house recordings could be showing a downward bias because of the lag in recordings of auction sales, short sales, and foreclosure sales, among other things.
In the video above, Yun talks about NAR’s EHS calculation methodology and the development of a new benchmarking procedure.
By Robert Freedman, senior editor, REALTOR® Magazine
A government-mandated foreclosure moratorium would take about 20 percent of homes available for sale off the market, and that’s something that would hurt the home sale market today and hinder the recovery that’s so badly needed tomorrow, NAR Chief Economist Lawrence Yun said in his monthly existing-home sales press conference yesterday. (See video)
Yun said the banks are right to look at their foreclosure processing to identify their paperwork mistakes. Those mistakes need to be fixed, because buyers are rightly concerned about buying foreclosures if there’s any uncertainty about the validity of the title. But right now that should be as far as the response goes in addressing improperly processed foreclosures, he said.
Just the threat of a moratorium is impacting sales. NAR surveyed about 2,000 of its members and found about a quarter of them have had a buyer pull out of the market out of concern over a moratorium.
Yun didn’t say this, but the statistics suggest buyers are concerned the rug will get pulled out from under them if they try to buy a foreclosed property.