Thursday, November 20, 2014

A Few Comments on October Existing Home Sales

by Bill McBride on 11/20/2014 01:43:00 PM

• Once again housing economist Tom Lawler's forecast of 5.31 million SAAR was closer than the consensus (5.15 million) to the NAR reported sales (5.26 million).

• The most important number in the NAR report each month is inventory.   This morning the NAR reported that inventory was up 5.2% year-over-year in October.   It is important to note that the NAR inventory data is "noisy" and difficult to forecast based on other data.  However this increase in inventory has slowed price increases.

The headline NAR inventory number is not seasonally adjusted, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko has sent me the seasonally adjusted inventory. NOTE: The NAR does provide a seasonally adjusted months-of-supply, although that is in the supplemental data.

Existing Home Inventory Seasonally AdjustedClick on graph for larger image.

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 11.7% from the bottom. On a seasonally adjusted basis, inventory was up 0.1% in October compared to September.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, many "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.

And another key point: The NAR reported total sales were up 2.5% from October 2013, however normal equity sales were even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):

Distressed homes – foreclosures and short sales – increased slightly in September to 10 percent from 8 percent in August, but are down from 14 percent a year ago. Seven percent of September sales were foreclosures and 3 percent were short sales.
Last year in October the NAR reported that 14% of sales were distressed sales.

A rough estimate: Sales in October 2013 were reported at 5.13 million SAAR with 14% distressed.  That gives 718 thousand distressed (annual rate), and 4.41 million equity / non-distressed.  In October 2014, sales were 5.26 million SAAR, with 10% distressed.  That gives 526 thousand distressed - a decline of about 27% from October 2013 - and 4.73 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 7%.. 

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in October (red column) were at the highest level for October since 2006.

This was another solid report.

Earlier:
Existing Home Sales in October: 5.26 million SAAR, Inventory up 5.2% Year-over-year