Thursday, December 19, 2013

Comments on Existing Home Sales

by Bill McBride on 12/19/2013 12:48:00 PM

As expected, existing home sales declined in November.  But lower existing home sales, and slower price appreciation, doesn't mean the housing recovery is over. What matters for jobs and the economy are new home sales, not existing home sales.  And I expect the housing recovery to continue.

A key story in the NAR release this morning was that inventory was up 5.0% year-over-year in November.    Inventory is still very low, but year-over-year inventory has now turned positive, and I expect inventory to continue to increase. With the low level of inventory, there is still upward pressure on prices - but as inventory starts to increase, buyer urgency will wane, and price increases will slow.

Existing Home Inventory Seasonally AdjustedClick on graph for larger image.

The NAR does not seasonally adjust inventory, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory (see graph of NAR reported and seasonally adjusted).

This shows that inventory bottomed in January (on a seasonally adjusted basis), and is now up about 8.4% from the bottom. On a seasonally adjusted basis, inventory was up 1.7% in November, even though the NAR reported inventory declined NSA.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Another key point: The NAR reported total sales were down 1.2% from November 2012, but conventional sales were probably up from November 2012, and distressed sales down.  The NAR reported that 14% of sales were distressed in November (from a survey that isn't perfect):

Nine percent of November sales were foreclosures, and 5 percent were short sales.
Last year the NAR reported that 22% of sales were distressed sales.  So total sales were down slightly, distressed sales down sharply and conventional sales were up.  That is a positive sign.   

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in November (red column) were above the sales for 2007, 2008 and 2010, 2011.  Sales were below 2012 (fewer distressed sales), and below 2009 (boosted by tax credit).

Overall this was a solid report.

Existing Home Sales in November: 4.90 million SAAR, Inventory up 5.0% Year-over-year