NAR February Existing Home Sales — Probably Just a Year Out Kissing Distance from Normality

Existing home sales statistics for February 2013 were just released by the National Association of Realtors® (NAR), and the housing recovery is now close enough to reach a normal level of sales activity within the next 12 months. Existing home sales, on a seasonally adjusted annualized rate (SAAR), ran at 4.98 million in February 2013. That is 10.2 percent greater than the level obtained in February 2012.

The last normal period of housing sales was likely 2002, prior to both mass-subprime lending availability and the seductive effects of the housing bubble. The average SAAR rate for 2002 was 5.66 million home sales. Thus, another 10.2 percent gain in the next 12-months would see February 2014 existing home sales reaching 5.49 million – literally kissing distance to the 2002 level. When compared on a buffering 12-month moving average, sales increased 9.8 percent.

Fortification in home prices has been due to job creation (finally—thank heavens), resulting in household formations and combined with a less-than normal-inventory of homes available for sale. February 2013 posted a minimal 4.7 months supply based on current demand. While up from the 4.3 months seen in January 2013, current inventory is down more than 26 percent from the same month a year ago.

The median U.S. home price was up 11.6 percent in February 2013 compared to a year ago, rising to $173,600. The average of median prices in the past 12 months of $178,280 was a gain of 8.6 percent compared to the same period one-year earlier. That is impressive. And the 12-month moving average removes the variability in sales and prices and mutes both changes up and down. It shows a more realistic trend existing in potential noisy monthly data.

Highlights of the NAR February sales statistics included:

  • Household wealth has increased $1.4 trillion in the prior 12 months due to increasing home values, per NAR. This means that many households that could not refinance a year ago can do so today. And even more a year from today. That is associated with fewer distressed properties, improving household balance sheets, the ability for households to sell and thus increased demand for move-up buyers. And the expectations for 2013 are essentially MOTSMore Of The Same
  • Short sales and foreclosures (distressed properties) made up 25 percent of all transactions in February 2013 compared to 34 percent one year ago. We are working through the massive wedge of distressed properties and approaching the end much quicker than most forecast
  • Just 10 percent of all sales in February 2013 were short sales, with 15 percent of total sales foreclosures
  • Short sales sold at an average 15 percent less than non-distressed closing while foreclosures were typically discounted 18 percent
  • First-time buyers made up 30 percent of all closings
  • All-cash transactions represented 32 percent of total closings (normal is in on the 12 to 14 percent range, so just examining total lending volume would understate the number of transactions and title revenues)
  • Investor purchases tallied 22 percent of all closings, contrasted to 19 percent one-year ago

The following three graphs show the extent of the recovery taking place in U.S. housing markets.

First in the series is minimal inventory. While most economists trend towards six months inventory as normal, the the end of February 2013 was just 4.7 months. This is a seller’s market corresponding to closed transactions selling near list price, at list price, or even some markets, with multiple offers resulting in prices greater than list price. Literally a bidding war environment. And for some markets in specific neighborhoods and product type, bidding wars are becoming recurrent and commonplace.

Months inventory is a function of the interaction of supply and demand. Demand is stated using a 12-month moving average in the following graph. Current demand compared to supply portends continued housing price increases.

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This next chart illustrates true trends in the number of home sales. These data are a calculated 12-month moving average of the SAAR of home sales as reported by NAR, and by doing so reveal a trend in the market place. We have seen either a flat moving average of sales or an increasing rate for the past 17 months in most markets depending on where you live. And that is great news.

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The final graph shows, again a 12-month moving average, median home prices. It vividly illustrates the impressive gain and ongoing recovery in housing values. While the 12-month moving average of median home prices plunged 29 percent from peak to trough, nationwide average decline is now just 20.5 percent. The latest 12-month moving average gain of 8.6 percent remains on track to recovering housing values. This in not to say that all markets are approaching their prior housing price bubble peak. Rather, it says that many markets are heading essentially up the track once again to normal. And several markets now have home values at the greatest recorded ever.

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To read the complete NAR press release on housing sales click here.

The bottom line is that housing is in an expansion mode, and recovering more rapidly than most ever expected.

What a great time to overweight in real estate.


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