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Monday, August 23, 2010

Lawler: Existing Home Sales: “Consensus” vs. Likely

by Calculated Risk on 8/23/2010 05:24:00 PM

CR Note: This is from economist Tom Lawler.

Given the various state/local MLS sales reports available for July, it seems INCREDIBLY likely that existing home sales last month were down a boatload from June’s pace. Every local realtor report I’ve seen showed a drop in sales from a year ago, with most showing YOY sales declines over 20%, and some reporting sales declines of over 40% from a year ago. (See last page for “raw” data) Yet amazingly the “consensus” forecast for existing home sales in July calls for a SAAR of 4.65-4.66 million, which would be down just 9.3-9.5% from last July’s seasonally adjusted pace. Of course, since this July had one fewer business day than last July, that would imply a larger YOY decline in unadjusted sales, but only to about 10.5-10.7%.

With so many state and/or local MLS publicly reporting YOY sales declines massively higher than that, how can the “consensus” be as high as it is?

Home sales: Pending vs. ClosedClick on graph for larger image in new window.

Even if an economist were willing to put out a forecast for existing home sales, but were unwilling to actually “do the work” in compiling local sales data, one would think that that economist would look at the pending home sales index – which plunged by 29.9% on a seasonally adjusted basis from April to May, and then fell by another 2.6% from May to June! How would these drops be consistent with a monthly seasonally adjusted decline of just 13.2% - 13.4%? Well, er, uh … they aren’t! One forecaster (no names!), after hearing about the local sales data, suggested that the NAR “just won’t” publish a sales number that low, and will probably “smooth” the number over the next several months!!! I very much doubt that!!!

So … where does the “consensus” come from, and why does it appear to be so far off?

Well, as best as I can determine A LOT of the economists surveyed for various “consensus” forecasts often don’t really know much about many of the statistics they are asked to project, but are still quite willing to be in such surveys. In the case of home sales, very few track local sales data, but surprising quite a few also don’t look at pending sales either! And for some others that do, they are often reluctant to project “really big” changes – they don’t feel comfortable being an “outlier” – and figure that if they get the direction right, well, THAT’S pretty good!

Below is a table showing the YOY % decline reported by various realtor organization/MLS/others. Where state realtor associations and/or other organizations show a full-state total, I don’t show individual areas separately. Note that for some areas the YOY growth reflects a preliminary count for this July vs. a final count for last July, and I try to take this into account in coming up with my own forecast.

Right now all of the incoming regional data in my view appear to be consistent with the NAR reporting a seasonally adjusted annual rate for existing home sales in July of 3.95 million. I’ve been a bit uncomfortable about the forecast because it is so far below consensus; however, that’s what the incoming data suggest!

If existing home sales come in as I expect, existing home sales (unadjusted) in the first seven months of 2010 will be up about 7.6% [compared to] sales in the first seven months of 2009.

August sales will probably come in pretty weak as well, however; while my early read suggests that the NAR’s pending home sales index will show a seasonally adjusted gain from June to July of around 5%, that would still leave the index about 19% below last July’s level.

So… what did we learn from the home buyer tax credit? (1) “if you pay them, they will come”; (2) if there is a deadline, they will rush to meet the deadline; and (3) when the deadline is over, sales will fall WAY below trend!

Some folks still like the tax credit, because (a) it helped “stabilize” home prices (short term it does appear to have); (b) it would help reduce excess inventories (for new home sales it did, but existing inventories have kept increasing); and (c) it would “generate interest” in the housing sector. On the latter score, the stabilization of home prices and reports of earlier strong sales DID appear to generate interest in housing – but mainly from previously “discouraged” sellers who decided to put their homes on the market (in many cases again) – which appears to be the major reason why active listings have INCREASED despite the tax-credit “goose” to sales!

YOY % Change, Home Sales, July 2010
.CaliforniaWhole State (new and resale)-21.9%    
.ColoradoDenver-26.6%Colorado Springs-23.4%  
. DCAll of DC-18.4%    
.FloridaNortheast Florida-12.8%Mid-Florida-10.5%Southeast Florida-9.1%
.IdahoAda County-24.0%    
.IllinoisChicago Metro-25.0%Peoria-36.8%  
.IndianaWhole State -28.8%    
.IowaWhole State-43.8%    
.KansasKansas City-36.9%Wichita-34.0%  
.MarylandWhole State-17.1%    
.MassachusettsWhole State-31.6%    
.MichiganDetroit metro-19.4%Ann Arbor-17.0%Kalamazoo-36.4%
.MinnesotaWhole State-40.8%    
.New HampshireWhole State-32.4%    
.New MexicoAlbuquerque-27.1%    
.New YorkLong Island-31.6%Greater Hudson Valley-37.2%Dutchess County-36.8%
.North CarolinaCharlotte-11.5%Triangle-31.0%Fayetteville-20.9%
.OklahomaOklahoma City-33.3%    
.PennsylvaniaPittsburgh-6.0%Lehigh Valley-41.7%  
.South CarolinaWhole State-16.1%    
.TexasWhole State-25.4%    
.VirginiaGreater NoVa-19.7%Hampton Roads-20.7%Roanoke Valley-36.6%
.WashingtonNW Washington-18.7%    
.WisconsinSouth Central Wisconsin-43.1%Milwaukee metro-48.6% 

CR Note: This is from economist Tom Lawler.