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Thursday, October 25, 2012

Housing: What Numbers Matter (Part 2)

by Calculated Risk on 10/25/2012 02:28:00 PM

Apparently some people think if existing home sales go flat, or even decline, the housing recovery is in trouble ... or something ...

From Diana Olick at CNBC: Why Today's Housing Report Spooked Investors So Much

[T]he National Association of Realtors reported no change in signed contracts to buy existing homes in September. ...

It wasn't so much the slight disappointment in the monthly index, it was more the comment from the Realtors' chief economist Lawrence Yun:

"This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”

Not exactly a rave.

We know we're coming off the bottom of the housing crash, but over the summer it felt to some like we were rocketing off the bottom. Now, not so much.
Existing home sales are coming off lows from last year, but last year was the hangover from the 2010 home buyer tax credit ...

"The year-over-year gain was the smallest of the year and comps against last year when the housing market was in a full blown double-dip mode," notes analyst Mark Hanson.
The number of existing home sales is just part of the story.

Let me repeat what I wrote earlier this year: Home Sales Reports: What Matters: "When we look at sales for existing homes, the focus should be on the composition between conventional and distressed. Total sales are probably close to the normal level of turnover, but the composition of sales is far from normal - sales are still heavily distressed sales. Over time, existing home sales will probably settle around 5 million per year, but the percentage of distressed sales will eventually decline. Those looking at the number of existing home sales for a recovery in housing are looking at the wrong number. Look at inventory and the percent of conventional sales."

Unfortunately I have little confidence in the NAR's estimate of conventional sales, but most local data shows a fairly strong increase in conventional sales (as opposed to short sales and foreclosures). As an example, the percent of conventional sales in Phoenix increased from 35.9% in September 2011 to 60.1% in September 2012. Now overall sales were down sharply - the Arizona Regional MLS reported sales in September were down 17.9% from September 2011, but conventional sales were up 37%. I think this is a positive.

Of course the key housing numbers for the economy and jobs are housing starts and new home sales. Also house prices matter too.   But the housing report this morning (pending home sales) was mostly irrelevant.