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Wednesday, May 22, 2013

Existing Home Sales: A few comments

by Calculated Risk on 5/22/2013 04:52:00 PM

The most important number in the existing home sales report was inventory, and the NAR reported that inventory increased 11.9% in April from March, and is only down 13.6% from April 2012.  This fits with the weekly data I've been posting.

This is the lowest level of inventory for the month of April since 2001, but this is also the smallest year-over-year decline since July 2011. The key points are: 1) inventory is very low, but 2) the inventory decline will probably end soon. With the low level of inventory, there is still upward pressure on prices - but as inventory starts to increase, buyer urgency will wane, and price increases will slow.

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

Another key point: The NAR reported total sales were up 9.7% from April 2012, but conventional sales are probably up close to 25% from April 2012, and distressed sales down.  The NAR reported (from a survey):

Distressed homes – foreclosures and short sales – accounted for 18 percent of April sales, down from 21 percent in March and 28 percent in April 2012.
Although this survey isn't perfect, if total sales were up 9.7% from April 2012, and distressed sales declined from 28% of total sales to 18%, this suggests conventional sales were up sharply year-over-year - a good sign. However some of this increase is investor buying; the NAR is reporting:
All-cash sales were at 32 percent of transactions in April, up from 30 percent in March; they were 29 percent in April 2012. Individual investors, who account for most cash sales, purchased 19 percent of homes in April, unchanged from March; they were 20 percent in April 2012.
The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in April (red column) are  above the sales for for 2008 through 2012, and close to the level in 2007.  Sales are well below the bubble years of 2005 and 2006. 

The bottom line is this was a solid report. Conventional sales have increased sharply, although some of this is investor buying. And inventory is low, but the year-over-year decline in inventory is decreasing.

Existing Home Sales in April: 4.97 million SAAR, 5.2 months of supply