Existing Home Sales Surprise to Upside. Discussing Broader Implications
The National Association of Realtors released Existing Home Sales data this morning.
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In last month's report from the NAR, existing-home sales jumped 9.4 percent to an annual rate of 5.57 million units in September from a level of 5.10 million in August. Sales activity was at the highest level since hitting 5.73 million annualized units in July 2007. Total housing inventory at the end of September fell 7.5 percent to 3.63 million existing homes available for sale, which represented an 7.8-month supply. The national median existing-home price for all housing 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 5.54 million in September. Sales activity is at the highest pace since February 2007 when it hit 6.55 million. Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply at the current sales pace, less than the revised for the worse 8.0-month supply which was reported in September. The national median existing-home price for all housing types was $173,100 in October, down 7.1 percent from October 2008.
From the National Association of Realtors...
Existing-home sales – including single-family, townhomes, condominiums and co-ops –surged 10.1 percent to a seasonally adjusted annual rate of 6.10 million units in October s from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008.
Sales activity is at the highest pace since February 2007 when it hit 6.55 million.
Single-family home sales rose 9.7 percent to a seasonally adjusted annual rate of 5.33 million in October from a pace of 4.86 million in September, and are 21.4 percent above the 4.39 million-unit pace in October 2008. The median existing single-family home price was $173,100 in October, down 6.8 percent from a year ago.
Existing condominium and co-op sales surged 13.2 percent to a seasonally adjusted annual rate of 770,000 units in October from 680,000 in September, and are 40.8 percent above the 547,000-unit level a year ago. The median existing condo price4 was $172,900 in October, which is 10.4 percent below October 2008.
Regionally, existing-home sales in the Northeast rose 11.6 percent to an annual level of 1.06 million in October, and are 27.7 percent higher than October 2008. The median price in the Northeast was $235,400, down 2.6 percent from a year ago.
Existing-home sales in the Midwest surged 14.4 percent in October to a pace of 1.43 million and are 28.8 percent above a year ago. The median price in the Midwest was $146,600, a gain of 1.1 percent from October 2008.
In the South, existing-home sales rose 12.7 percent to an annual level of 2.30 million in October and are 25.7 percent higher than October 2008. The median price in the South was $151,100, down 6.3 percent from a year ago.
Existing-home sales in the West increased 1.6 percent to an annual rate of 1.31 million in October and are 12.0 percent above a year ago. The median price in the West was $220,200, which is 14.7 percent below October 2008.
Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply2 at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago.
The national median existing-home price for all housing types was $173,100 in October, down 7.1 percent from October 2008. Distressed properties, which accounted for 30 percent of sales in October, continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area.
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So existing home sales really improved in October 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 the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November”
“With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.”
“In the second half of 2010, if home values show consistent stabilization or even a modest increase, then home sales could remain at normal healthy levels because consumers would no longer be worried about a price overcorrection,”
“The supply of homes on the market is now at the lowest level in over two-and-a half years – we’re getting closer to a general balance between buyers and sellers"
“With the abnormal drop in home prices over the past few years, the price-to-income ratio has fallen below the historic trend line,” “This is adding to the buying power of the typical family, with affordability conditions this year at the highest on record dating back to 1970, but prices are beginning to flatten 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, existing home sales are not as forward looking as other housing indicators such 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, when the deed is actually transferred to the new owner. It can take up to three months for a purchase transaction to close, if it closes at all as the origination process remains cluttered with roadblocks and delays. On top of this, the additional tighetening of credit guidelines is expected to continue to reduce the number of qualified borrowers who are looking to buy.
2. When homes are being built AND selling, money moves around the economy more efficiently. The size of the housing market combined with the broad influences it has over the economy make the real estate sector a reliable leading indicator of economic activity. Real estate is one of the first sectors to contract when a recession is looming and one of the first to show signs of recovery when economic activity begins to improve.
Think about the materials that go into BUILDING a home....WOOD, STEEL, PLASTICS, WIRING, PIPING, CONCRETE, GLASS, ELECTRICITY, 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...