Existing Home Sales Surprise to Upside. Discussing Broader Implications

The National Association of Realtors released Existing Home Sales data this morning.

READ HOW THE NAR COMPILES DATA AND GAIN A BETTER UNDERSTANDING OF SEASONAL INFLUENCES

In last month's report from the NAR, existing-home sales  jumpedrn9.4 percent to an annual rate of 5.57 million units in September from arnlevel of 5.10 million in August. Sales activity was at the highestrnlevel since hitting 5.73 million annualized units in July 2007.  Totalrnhousing inventory at the end of September fell 7.5 percent to 3.63rnmillion existing homes available for sale, which represented anrn7.8-month supply.  The national median existing-home price for allrnhousing types was $174,900 in September,

In this month's report, existing-home sales surged 10.1 percent to an annual rate of 6.10 million units in October from a downwardly revised pace of 5.54rnmillion in September. Sales activity is at the highest pace sincernFebruary 2007 when it hit 6.55 million. Total housing inventory at the end of October fell 3.7 percent to 3.57rnmillion existing homes available for sale, which represents a 7.0-monthrnsupply at the current sales pace, less than the revised for the worse 8.0-month supply which was reported inrnSeptember. The national median existing-home price for all housing types wasrn$173,100 in October, down 7.1 percent from October 2008.

From the National Association of Realtors…

Existing-home sales – including single-family, townhomes, condominiumsrnand co-ops –surged 10.1 percent to a seasonally adjusted annual raternof 6.10 million units in October s from a downwardly revised pace of 5.54rnmillion in September, and are 23.5 percent above the 4.94 million-unitrnlevel in October 2008.

Sales activity is at the highest pace sincernFebruary 2007 when it hit 6.55 million.

Single-family home sales rose 9.7 percent to a seasonally adjustedrnannual rate of 5.33 million in October from a pace of 4.86 million inrnSeptember, and are 21.4 percent above the 4.39 million-unit pace inrnOctober 2008. The median existing single-family home price was $173,100rnin October, down 6.8 percent from a year ago.<pExisting condominium and co-op sales surged 13.2 percent to arnseasonally adjusted annual rate of 770,000 units in October fromrn680,000 in September, and are 40.8 percent above the 547,000-unit levelrna year ago. The median existing condo price4 was $172,900 in October,rnwhich is 10.4 percent below October 2008.

Regionally, existing-home sales in the Northeast rose 11.6 percent tornan annual level of 1.06 million in October, and are 27.7 percent higherrnthan October 2008. The median price in the Northeast was $235,400, downrn2.6 percent from a year ago.<br /<br /Existing-home sales in the Midwest surged 14.4 percent in October to arnpace of 1.43 million and are 28.8 percent above a year ago. The medianrnprice in the Midwest was $146,600, a gain of 1.1 percent from Octoberrn2008.<br /<br /In the South, existing-home sales rose 12.7 percent to an annual levelrnof 2.30 million in October and are 25.7 percent higher than Octoberrn2008. The median price in the South was $151,100, down 6.3 percent fromrna year ago.<br /<br /Existing-home sales in the West increased 1.6 percent to an annual raternof 1.31 million in October and are 12.0 percent above a year ago. Thernmedian price in the West was $220,200, which is 14.7 percent belowrnOctober 2008.

Total housing inventory at the end of October fell 3.7 percent to 3.57rnmillion existing homes available for sale, which represents a 7.0-monthrnsupply2 at the current sales pace, down from an 8.0-month supply inrnSeptember. Unsold inventory totals are 14.9 percent below a year ago.

The national median existing-home price for all housing types wasrn$173,100 in October, down 7.1 percent from October 2008. Distressedrnproperties, which accounted for 30 percent of sales in October,rncontinue to downwardly distort the median price because they usuallyrnsell at a discount relative to traditional homes in the same area.

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So existing home sales really improved in September and inventories continued to decline….much more than expected!

A few comments from NAR's chief economist Lawrence Yun:

“Many buyers have been rushing to beat the deadline for thernfirst-time buyer tax credit that was scheduled to expire at the end ofrnthis month, and similarly robust sales may be occurring in November” 

“With such a sale spike, a measurable decline should bernanticipated in December and early next year before another surge inrnspring and early summer.”

“In the second half of 2010, if home values show consistentrnstabilization or even a modest increase, then home sales could remainrnat normal healthy levels because consumers would no longer be worriedrnabout a price overcorrection,”

“The supply of homes on the market is now at the lowest level in overrntwo-and-a half years – we’re getting closer to a general balancernbetween buyers and sellers”

“With the abnormal drop in homernprices over the past few years, the price-to-income ratio has fallenrnbelow the historic trend line,”  “This is adding to the buyingrnpower of the typical family, with affordability conditions this year atrnthe highest on record dating back to 1970, but prices are beginning tornflatten and are poised to rise next year.”

Sounds like progress right?

Yes, on the surface progress is obvious. Especially when you consider that the two supportive factors given credit for the gains, the home buyer tax credit and record home affordability, will carry over into 2010. Very helpful!

A caveat regarding Existing Home Sales though…

When viewing housing data in the context of the broader economy,rnexisting home sales are not as  forward looking as other housing indicatorsrnsuch as new construction and pending home sales. This is for a few reasons…

1. Existing home sales data is only reported at the time of closing, not when the deed is transferred to the new owner. It can take up to threernmonths for a purchase transaction to close, if they close at all.  This problem has been morernrelevant in recent months as lender turn times have slowed and otherrnroadblocks like HVCC, new RESPA rules, and market volatility haverndelayed closings. On top of this, the additional tighetening of credit guidelines is expected to continue to reduce the amount of qualified borrowers who are looking to buy.

2. When homes are being built AND selling, money moves around the economy morernefficiently. The size of the housing market combined with the broadrninfluences it has over the economy make the real estate sector arnreliable leading indicator of economic activity. Real estate is one ofrnthe first sectors to contract when a recession is looming and one ofrnthe first to show signs of recovery when economic activity begins tornimprove.

Thinkrnabout the materials that go into BUILDING a home….WOOD, STEEL, PLASTICS, WIRING, PIPING, CONCRETE, GLASS,rnELECTRICITY, FURNITURE, CARPETING, ELECTRONICS, APPLIANCES….LABOR.

While existing home sales do pump money back into the economy via commissions earned by realtors and mortgage originators, in terms of the overall economy they are not as powerful as momentum in new construction which has failed to make notable progress. READ MORE

I don't want to competely discount the improvements made in the past few months though. When you stop and think about it…new construction is not likely to gain momentum until the supply of current housing inventory drops below at least 6 months. So….perhaps we should say that Existing Home Sales have become a forward looking indicator for new construction?

If viewed in that manner, progress is being made in the housing market. We have to start somewhere….

That doesn't change my overall outlook though….Until the labor market stabilizes and jobs start being created, the housing market will undergo a slow, frustrating recovery process, for mortgage and real estate professionals especially. The industry is not done contracting, profit margins will continue to shrink and more jobs will be lost as new regulations take effect and main stream lenders increase competitiveness within the mortgage sector. Stay cost efficient, stay nimble…rnrn

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