Monday, July 18, 2011

Lawler: Existing Home Sales Down in June

by Bill McBride on 7/18/2011 03:58:00 PM

Economist Tom Lawler sent me an update to his June forecast (about the same sales and inventory forecast as the post this weekend with more detail), from Lawler:

Based on my regional tracking of local home sales reports, I estimate that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of about 4.71 million in June, down 2.1% from May’s pace and down 9.9% from last June’s pace. While at first glance this below-consensus forecast might seem at odds with May’s increase in pending sales, that increase followed a sharp drop in April, and pending sales tend to lead closed sales by over a month (though lags vary dramatically across areas/regions).

Last June the NAR estimated that existing home sales ran at a seasonally adjusted annual rate of 5.23 million. Looking at local realtor reports, there were only a handful of areas experiencing YOY increases in sales; some experienced modest declines; and quite a few experienced sizable YOY declines. This June had the same number of business days as last June, and this June’s seasonal factor shouldn’t be much different from last June’s.

On the inventory front, the NAR’s numbers appear to display a different seasonal pattern than do actual listing data, though I don’t have a long time series comparison. Based on the limited information I have, I expect the NAR’s inventory measure will decline by about 1.5% from May to June, and will be down about 5.7% from last June. The NAR’s inventory measure has shown decidedly smaller YOY declines this year than have actual listings, potentially suggesting that sales vs. a year ago have been weaker than the NAR’s estimates suggest.

On the pending home sales front, deriving estimates is more challenging because many realtor groups don’t report statistics on new pending sales to the public. Of course, many realtor groups don’t actually TRACK new pending sales, and as a result the NAR’s sample for pending sales is only about half as large as that used to estimate closed existing home sales. This is one of many reasons why the correlation between the NAR’s pending home sales index and closed existing home sales is not as high as one might expect.

However, based on the data I’ve seen so far, I estimate that the NAR’s pending home sales index in June will show a seasonally adjusted increase of 2.6% from May, which translates into a YOY gain of 20%. Last June, of course, pending sales were extremely depressed, as the federal home buyer tax credit – which expired based on contract signing last April – led many home buyers to accelerate planned home purchases. Based on the May and June pending sales data, existing home sales should rebound modestly in July and August.