Wednesday, July 22, 2015

A Few Random Comments on June Existing Home Sales

by Bill McBride on 7/22/2015 03:04:00 PM

First, as always, new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale. Also I wouldn't be surprised if the seasonally adjusted pace for existing home sales slows over the next several months - due to limited inventory and higher mortgage rates.

Second, in general I'd ignore the median sales price because it is impacted by the mix of homes sold (more useful are the repeat sales indexes like Case-Shiller or CoreLogic). The NAR reported the median sales price was $236,400 in June, above the median peak of $230,400 in July 2006. That is 9 years ago, so in real terms, median prices are close to 20% below the previous peak.  Not close.

Third, Inventory is still very low (up only 0.4% year-over-year in June). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. This will be important to watch.

Note: I'm hearing reports of rising inventory in some mid-to-higher priced areas.  However many low priced areas still have little inventory.

Also, the NAR reported total sales were up 9.6% from June 2014, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):

Distressed sales — foreclosures and short sales — fell to 8 percent in June (matching an August 2014 low) from 10 percent in May, and are below the 11 percent share a year ago. Six percent of June sales were foreclosures and 2 percent were short sales.
Last year in June the NAR reported that 11% of sales were distressed sales.

A rough estimate: Sales in June 2014 were reported at 5.01 million SAAR with 11% distressed.  That gives 551 thousand distressed (annual rate), and 4.46 million equity / non-distressed.  In June 2015, sales were 5.49 million SAAR, with 8% distressed.  That gives 439 thousand distressed - a decline of about 20% from June 2014 - and 5.05 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 13%.

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in June (red column) were the highest for June since 2007 (NSA).

Existing Home Sales in June: 5.49 million SAAR, Highest Pace in Eight Years