Thursday, February 13, 2014

Lawler: Early Read on Existing Home Sales in January

by Calculated Risk on 2/13/2014 11:01:00 AM

From housing economist Tom Lawler:

Based on local realtor/MLS results I have seen so far, I would estimate that existing home sales as estimated by the National Association of Realtors in January will be about 275,000 on an unadjusted basis, down 5.8% from last January’s unadjusted pace. “Guessing” NAR’s seasonally adjusted estimate this month, however, is trickier than usual, because in the January report the NAR incorporates annual revisions in the seasonal factors used to “transform” unadjusted estimates to seasonally adjusted estimates, and in lately these revisions have been considerable. While someone with the specific version of the seasonal adjustment program used by the NAR (as well as specifics about methodology – e.g., are regional estimates adjusted and then summed, or are national estimates first adjusted and then regional estimates are constrained to the national estimates) could produce the 2014 seasonal factors (and the revised factors for previous years), I am not such a person.

Based on what I THINK the seasonal factor for January should be (not much different from last January), I estimate that existing home sales as measured by the NAR will come in at a seasonally adjusted annual rate of about 4.67 million, down 4.1% from December’s SA pace, and down 5.5% from last January’s SA pace.

While this number might seem “low” – it would be the slowest SA sales pace since July 2012 – it’s not that surprising given (1) the big declines (adjusted for “seasonals”) in pending sales seen in many parts of the country in December; and (2) the unusually bad weather in many parts of the country last month.

While a number this low (or conceivably lower) will be attributed by many as being mainly weather related, in fact that is not the case. To be sure, sales were depressed by adverse weather conditions in many parts of the country last month. By the same token, however, the steep declines in pending sales in December in many parts of the country were not weather related. In fact, some of the biggest YOY declines in pending sales in December were in areas unaffected by weather but where (1) distressed sales AND investor buying were down sharply; and (2) where purchases by owners were flat to down. Some other areas, including the DC metro area, also saw unusually weak pending sales in December, when weather was not unusually “bad.”