The just-released September 2013 existing homes by the National Association of Realtors® (NAR) is truly dichotomizing the press, investors, analysts and economists between the Glass is Half Full and the Glass is Half Empty crowds. Year-over-year comparison from September 2013 shows an increase on a seasonally-adjusted annualized basis of 10.7 percent in the number of sales of existing homes, while median price increased 11.7 percent to $199,200. The dichotomy between the groups, however, is not on the year-over-year increase, but rather the sequential decline from August to September of 1.9 percent and 5.0 percent for sales and median prices, respectively.
Me? I’m in the Glass is Half Full group, and simply do not give much credence to single monthly data since these are typically noisy by nature and all are subject to revision. If you’ve read my blog in the past – blog.stewart.com/ted – you know that I prefer to use 12-month moving averages since it removes the month-to-month noise from the data and at the same time reveals any trends more distinctly.
From a 12-month moving average perspective, existing home sales were up 11.8 percent while median price gained 11.7 percent.
The following graph illustrates the 12-month moving average sales rate and median prices. While I anticipate a continued increase in sales and price, neither is expected to maintain their recent pace given rising interest rates and ongoing market uncertainty.
The number of months of inventory continues to range below the ‘normal’ level of six months. Many economist believe that six months is the normal level of inventory whereby neither the buyer nor seller have a comparative advantage in the bid-ask process. In the eight month range it is a buyer’s market, while anything five months and below is considered a seller’s market and is often associated with bids above asking prices and multiple offers.
Other details from the NAR September existing home sales release includes:
- Distressed sales made up just 14 percent of all transactions in September, with foreclosures representing 9 percent and short sales 5 percent
- The average sales price discount of a foreclosure was 16 percent less than non-distressed sales, with short sales discounted just 12 percent
- Investors represented one-in-five home buyers (19 percent)
- Cash sales were prevalent in one-out-of three purchases (33 percent)
- In September, 74 percent of all investors paid cash
- First-time buyers made up three-in-ten sales (28 percent)
- Typical time-on-the-market was 50 days versus 43 days in August, compared to 70 days in September 2012
- Short sales were on the market a median 93 days compared to 43 days for foreclosures
- Non-distressed properties sold in 49 days (median)
NAR did express concern about two speed bumps that may show up in October sales numbers. First, during the government shutdown in October, it was not possible to obtain IRS tax transcripts required for loan approvals. The second was the significant increase in flood insurance premiums effective October 1, 2013. In the prior month, while 10 percent of sales were located in flood zones, almost one-out-of-ten (or 1 percent of all sales) were either delayed or canceled due to the increased cost of flood insurance. To read the entire NAR report click http://www.realtor.org/news-releases/2013/10/existing-home-sales-down-in-september-but-prices-rise
To me, the Glass is Half Full, and while refinance volumes will continue to significantly erode, home sales are on an upwards trend, though at a muted place from recent strong gains. I am more in the Fannie Mae camp which is seeing just a 2.5 percent increase in existing home sales in 2014. In my opinion the slowdown in the increase in sales will be a function of rising interest rates, a still tepidly growing economy, and ongoing uncertainty in the debt ceiling and related government (or lack thereof) leadership. Next year is an election year, after all, and the rhetoric will just accelerate.