November 2016 Existing Home Sales — Reading Between the Lines

If you read the glowing headlines regarding November 2016 existing home sales, euphoria is a likely descriptor of the results. On the surface, the National Association of Realtors® (NAR) reports that sales were up a massive 15.4 percent when compared to a year ago on a seasonally adjusted annualized rate (SAAR).

Now for the Rest of the Story. The Consumer Financial Protection Bureau (CFPB) instigated new closing rules for housing sales with loans a year ago commencing October 3, 2015. TRID combined the Truth in Lending Disclosures (TILA) with the Real Estate Settlement Procedures Act (RESPA) for the CFPB’s Know Before You Owe (KBYO) or TRID closing rules. This was such a major change that many lenders were simply unprepared to process new loan applications as of the starting date. As a result, the Mortgage Bankers Association reported the number of loan applications in the first full week under the new procedures dropped 27.6 percent when compared to the week prior – even though interest rates essentially remained unchanged. While the new TRID rules likely did not reduce total sales in the long run, they did end up pushing many potential November 2015 closings into December 2015. As a result, NAR reported a 1.8 percent decline in housing sales in November 2015 versus a year ago, after having averaged a 7.3 percent increase in the first 10 months of 2015.

Essentially a year-over-year comparison for the number of existing home sales is pretty meaningless for both November and December 2016. The November 2016 percentage increase in home sales is overstated and December 2016 year-over-year percentage change will be understated. Median price data, however, were not impacted by the TRID issues.

November 2016 existing home sales totaled 5.61 million on a SAAR. Median price increased 6.8 percent versus a year ago to $234,900. This was the 57th consecutive month median price increased on a year-over-year basis. These are shown in the following graph.

12-22-16 table

 
Other details and metrics from NAR’s release included:

  • November sales rate at 5.61 million homes on a SAAR is the greatest level posted since February 2007
  • 1st time buyers bought 32 percent of all the sales in November, versus a normal 40 percent in decades past
  • Buyers paid all-cash in one-out-of-every five closings (21%) in the month, down from one-out-of four (27 percent) a year ago
  • Investors bought one-out-of-ever eight sales (12 percent) compared to 16 percent a year ago.
  • They paid all cash 58 percent of the time. This was the lowest rate of all-cash transactions by investors since August 2009
  • Distressed sales made up 6 percent of November closings compared to 5 percent a month earlier
  • Two out of every 100 sales were short sale transactions, double the rate from the prior month. Short sales will likely be up in December also, as Congress is probably not going to renew the tax exemption for forgiven debt on a primary dwelling. Unless acted on, forgiven debt will result in imputed and taxable income in 2017. Short sales sold at an average 16 percent discount when compared to non-distressed properties
  • Foreclosures made up just 4 percent of all sales and sold at an average 17 percent discount
  • 42 percent of all properties sold in November 2016 were on the market less than one month. Short sales took the longest at 110 days, foreclosures 55 days and non-distressed properties 41 days
  • Inventory continues to shrink with the total number of listings (1.85 million) down 9.3 percent versus a year ago. There was an estimated four months of inventory available for sale at the end of 2016, equating to a seller’s market as six months inventory is considered normal for existing homes

To read the entire NAR release and to access the underlying data series click https://www.nar.realtor/news-releases/2016/12/existing-home-sales-forge-ahead-in-november

My doctorate included 15 hours of statistics (minor). One of the statistics professors frequently stated that, “One should never use statistics like a drunk uses a lamp post – for support rather for illumination. “ Agreed.

From a point of illumination, November housing sales were the strongest since 2007 on a SAAR. That’s good news.

Ted

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