Realtor Revisions Make HIP Look Good

Written by Jonathan Dienhart and Ken Lee

Do you trust your data sources? With so many different sets of data out there, it can be tough to know which one to use. A couple weeks ago, the National Association of Realtors (NAR) announced that they would be making substantial revisions to their existing home sales data going back to 2007, and noted that they had overstated the volume of sales during recent years due to a number of factors. In their defense, the Realtors have a tough job: they rely on data from their various member multiple listing services (MLS) and then have to estimate the number of transactions that occurred outside of MLS or outside of the coverage area. Here at Hanley Wood we are fortunate to have Housing IntelligencePro, which, instead of relying on MLS or estimates, calculates activity based upon actual closing records from each municipality. Based on this data of real transactions, we had always thought the NAR numbers were a little elevated. Prior to the revision, they had estimated existing home sales fell a total of 31% between 2005 and 2010. Meanwhile our figures from Housing IntelligencePro indicated that during the same time frame, resales fell by over 45%. Post revision, NAR’s numbers have moved much closer to ours and reflect a 41% decline. Going forward, we’re glad we don’t have the same task of estimation and guesswork that those without complete data are faced with. As the song goes, “Ain’t Nothing Like the Real Thing.”

In broader housing news, in 2012 we expect sales activity will very slowly begin to improve. While we didn’t see anything that could be described as “recovery” in 2011, pricing and demand have started to stabilize somewhat, and inventory has fallen to more manageable levels. Units of new home inventory are at new lows while units of existing home inventory are at their lowest levels since May 2005.

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The Economy
Consumer confidence has rebounded for two straight months since plunging to multi-year lows in October. The consumer confidence index jumped to a reading of 64.5 from a revised November figure of 55.2. The consumer confidence index was at its lowest level in October since April 2009 but increased 14.3 points in November and 9.3 points in December. This is the highest the index has been since April.

Final estimates for third quarter GDP growth showed the economy growing at a slower pace than both preliminary and advance estimates suggested. The U.S. economy expanded at a 1.6% pace in the final third quarter report which was revised down from 2.0% in preliminary estimates and 2.5% in advance estimates. This marks the ninth straight quarter that the U.S. economy has expanded. It is still the quickest rate of growth since the fourth quarter of last year. A downward revision in consumer spending was the main reason GDP was revised lower.

First-time jobless claims reversed recent trends and increased last week following two straight weeks of sharp declines. First-time unemployment claims increased by 15,000 to a seasonally-adjusted figure of 381,000 in the week ended December 24th from an upwardly revised figure of 366,000 in the previous week. Initial jobless claims had fallen to their lowest levels since April 2008 in the previous week. However, the recent downward trend in initial jobless claims is a positive sign for the labor market heading into next year.

Housing Market
After surging to higher levels at the end of November, purchase activity dipped for the remainder of the year. In the week ending December 30th, the Mortgage Bankers Association’s seasonally-adjusted purchase index declined 9.65% from the previous week. This is the fourth consecutive week that the purchase index has declined.

The National Association of Realtors’ Pending Home Sale Index increased again in November to a 19-month high. The index increased 7.3% from the previous month to a reading of 100.1 compared to an upwardly revised October figure of 93.3. The index is 5.9% higher than it was this time last year when it stood at 94.5. This is the highest the index has been since April 2010 when the federal homebuyer tax credit expired.

National average mortgage increased from the previous week to 3.95% with an average 0.7 points in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on December 29th. Rates are coming off all-time record lows that were set in the previous week. This is the first time in four weeks that rates have recorded a weekly gain. Rates have now averaged under 4.5% for 22 straight weeks and have averaged under 4.0% for four straight weeks.

Both new and existing home sales increased in November although historical revisions to existing home sales showed that activity was much weaker than previously thought. Stronger demand also did not help new home prices which continued to decline despite increased sales activity. Because of record low mortgage rates, affordability in both the new and existing home markets remain at historically high levels.

New home sales in November increased 1.6% from the previous month to a seasonally-adjusted annual rate of 315,000 units. This is the fastest annual pace for new home sales since April. It is also the third straight month that the pace of new home sales has increased. New home sales for the previous three months were revised higher by 3,000 units. New home sales are up 9.8% from the 287,000 units in November 2010 but are 16.0% lower than the November 2009 figure of 375,000 units. It is important to keep in mind that new home sales are being compared to year-ago levels when it stood near all-time lows following a drop in demand after the federal homebuyer tax credit expired.

In November, median new home prices declined to $214,100 from an upwardly revised October figure of $222,600. This is the lowest that median new home prices have been since October of last year. Median new home prices are down 2.5% from this time last year and are 2.1% lower than they were this time two years ago.

Lower prices and falling mortgage rates helped the new home affordability reach a new all-time record high in November. The new home affordability ratio increased again to a reading of 62.7% in November from a revised October reading of 62.4%.

In November, new home inventories declined from the previous month to 158,000 units on a seasonally-adjusted and non-seasonally adjusted basis. New home inventories are at new all-time record lows. New home inventory on a non-seasonally adjusted basis has not recorded a monthly increase since May 2007. Based on the current sales pace, there are now 6.0 months of new home inventory on the market in November. This matches the lowest months of new home inventory on the market since March 2006.

Existing home sales increased in November to a seasonally-adjusted annual rate of 4,420,000 units which is 4.0% higher than the 4,250,000 units in October, according to NAR. Existing home sales are 12.2% higher than they were compared to the 3,940,000 units in November of last year. This is the second straight month that existing home sales have increased and the fifth consecutive month that existing home sales have recorded year-over-year gains. However, year-over-year comparisons may be a bit skewed because they are being compared to depressed levels this time last year after the federal homebuyer tax credit expired. Existing single-family home sales increased 4.5% from last month to 3,950,000 units while condo and co-op resales remained unchanged from October levels at 470,000 units.

The median sales price of an existing home in November increased to $164,200 from $160,800 in October. This is the first time existing home prices have experienced a monthly gain since June. However, median existing home prices are still 3.5% lower than they were this same time last year when they stood at $170,200. Existing home prices have now recorded 12 straight months of year-over-year declines.

An increase in median existing home prices caused the existing home affordability ratio in November to record its first monthly drop since June. The existing home affordability ratio declined to 72.1% in November from an all-time record high of 72.5% in October. In spite of this month’s decline, existing home affordability remains at historically high levels. The existing home affordability ratio is almost three full percentage points higher than it was this time last year when it stood at 69.2%.

Existing home inventory continued to improve in November which will continue to help home prices stabilize. Inventory of existing homes declined 5.8% from the previous month to a preliminary figure of 2.74 million units. This is the fifth consecutive month that existing home inventory has declined and the lowest it has been since May 2005. Months of inventory improved last month due to an increase in sales activity coupled with the decline in inventory levels. At the current pace, there are 7.0 months of existing home supply on the market. This is the lowest months of existing home supply on the market since November 2009.

URL to original article: http://www.housingintelligence.com/economics/realtor-revisions-make-hip-look-good.html?cid=BP:010512:FULL

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