Thursday, March 20, 2014

Comments on Existing Home Sales

by Calculated Risk on 3/20/2014 11:59:00 AM

The NAR reported this morning that inventory was up 5.3% year-over-year in February.

A few points:
• Inventory is the KEY number in the NAR release.
• The NAR inventory data is "noisy" (and difficult to forecast based on other data), however it appears inventory bottomed in early 2013.
• The headline NAR inventory number is NOT seasonally adjusted (and there is a clear seasonal pattern).
• Inventory is still very low, and with the low level of inventory, there is still upward pressure on prices.
• I expect inventory to increase in 2014, and I expect the year-over-year increase to be in the 10% to 15% range by the end of 2014.
• However, if inventory doesn't increase, prices will probably increase a little faster than expected (a key reason to watch inventory right now).

Existing Home Inventory Seasonally AdjustedClick on graph for larger image.

The NAR does not seasonally adjust inventory, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory (see graph of NAR reported and seasonally adjusted).

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 6.8% from the bottom. On a seasonally adjusted basis, inventory was mostly unchanged in February compared to January.

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 down 7.1% from February 2013, but normal equity sales were probably up from February 2013, and distressed sales down.  The NAR reported that 16% of sales were distressed in February (from a survey that isn't perfect):

Distressed homes – foreclosures and short sales – accounted for 16 percent of February sales, compared with 15 percent in January and 25 percent in February 2013.
Last year the NAR reported that 25% of sales were distressed sales.

A rough estimate: Sales in February 2013 were reported at 4.95 million SAAR with 25% distressed.  That gives 1.24 million distressed (annual rate), and 3.71 million conventional.  In February 2014, sales were 4.60 million SAAR, with 16% distressed.  That gives 0.74 million distressed, and 3.86 million conventional.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up.  A positive sign!

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in February (red column) were above the sales for 2008 through 2011, and below sales for the last two year. 

Overall this report was as expected (fewer distressed sales pulling down overall sales), and inventory needs to be watched closely.

Earlier:
Existing Home Sales in February: 4.60 million SAAR, Inventory up 5.3% Year-over-year