Monday, December 16, 2013

Lawler: Early Read on Existing Home Sales in November

by Bill McBride on 12/16/2013 05:03:00 PM

From housing economist Tom Lawler:

Based on realtor/MLS reports I’ve seen across the country, I estimate that US existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of 4.98 million in November, down 3.7% from October’s SA pace, and up just 0.4% from last November’s SA pace. I estimate that unadjusted existing home sales last month were down about 2.9% from last November’s pace – the first YOY decline since June 2011. This November, however, had one fewer business day than last November, and as such this November’s will be lower than last November’s (meaning that the YOY change in seasonally adjusted sales will exceed that of unadjusted sales).

While difficult to quantify, the 16-day government shutdown in October appears to have negatively impacted November home closings, through three channels: (1) delays in various loan-application verifications associated with the IRS/SSA being closed for the first half of October; (2) adverse impacts on “confidence” related to the government shutdown; and (3) temporary direct adverse impacts on potential buyers (e.g., furloughed government workers). It is worth noting that sales in the DC metro area, which in October showed a YOY increase of 19.1%, were down 13.7% YOY in November.

There also appears to have been a significantly slowdown in investor buying in many parts of the country in November, in large part reflecting lower inventories of homes priced “attractively enough” for rental/investment purchases (as opposed to overall inventories). E.g., in Phoenix and Orlando overall home listings were up both on the month and from year-ago levels, home sales were down sharply YOY. Here is how the Orlando Regional Realtor Association “explained” the significant decline in Orlando home sales last month.

"We’re seeing fewer investor and institutional buyers in the Orlando market due to the dramatic gains in median prices we’ve experienced,” Merchant says. "In addition, we’re experiencing another effect of the governmental shutdown, which understandably dampened buyers’ willingness to commit to a home purchase in October. Since it takes about four weeks to move from contract to closing, the expected result is a drop in completed sales in November.”
The rapid increase in home prices over the last year in several markets, combined with increases in mortgage rates from earlier this year, has also dampened “traditional” home buying, according to several realtor sources.

To be sure, not all areas showed weakness in home sales this November vs. last November. Charlotte and the Triangle area of North Carolina, e.g., both showed double-digit YOY sales gains, and MLS sales in Long Island were up 25.5% from a year ago (though sales last November were adversely impacted by Hurricane Sandy). By the same token, however, there were double-digit YOY declines in sales in several areas of the country, including but not limited to the DC metro area, Phoenix, Vegas, quite a few California areas, and several key Florida area.

On the inventory front, home listings typically drop seasonally by a significant amount in November in most (though not all) parts of the country, and most realtor/MLS reported sizable monthly declines in inventories (exceptions include Phoenix, Arizona, and several Florida markets.) Based on realtor/MLS reports as well as reports from entities that track regional listings, my “best guess” is that the NAR’s estimate of the number of existing homes for sale at the end of November will be down 4.7% from October, and up 2.0% from last November.

Finally, I estimate that the NAR’s estimate of the median existing SF home sales price in November will be about 9.0% higher than last November.

CR Note: The NAR is scheduled to report November existing home sales on Thursday, Dec 19th.