Existing home sales continue the recovery to normal, with October 2013 sales of 5.12 million on a seasonally-adjusted, annualized rate (SAAR), compared to 4.83 million a year ago, as reported by the National Association of Realtors® (NAR). This was a gain of 6 percent. Sequentially, however, sales dipped from 5.29 million in September 2013. Year-over-year median home price rose from $176,900 to $199,500, a gain of 12.8 percent.
Since these are preliminary data subject to revision, I prefer to use a 12-month moving average, which removes the randomness from each individual month and better illustrates longer-term trends. Based on the 12-month moving average, October sales were up 11.3 percent and median price up 11.3 percent to $193,000.
On a 12-month average moving basis, median U.S. home prices have now recovered one-half (48 percent) of the total decline in home prices from the peak in July 2006 of $224,350 to the trough of $164,230 in February 2012. Sales (again, using the 12-month moving average of the SAAR), peaked in November 2005 at 7.08 million, and hit a bottom of 4.01 million as of May 2009. The current SAAR on a 12-month moving average is 5.0875 million.
The following graph shows the 12-month moving average for both the number of sales and median price, using the 12-month moving average. Remember my axiom on sales and price: wherever the moving average on sales goes, prices follow in the next 12 to 24 months. See the previous blog on this topic at http://blog.stewart.com/stewart/2013/05/13/another-top-10-list-the-hottest-housing-markets-in-2013/
So where are prices heading? My axiom says up. Supporting that is the number of months of inventory, which is a statistical calculation of supply and demand. It is calculated by dividing the number of available listings (supply) by the number of homes sold in the prior 12 months (a proxy for current demand), and then multiplying that calculation times 12. For existing homes six months inventory is considered normal. Currently, there is an estimated five months inventory available for sale, again portending an increase in home values. The following table shows the decline in inventory in recent years.
Do I anticipate an ongoing double-digit percentage increase in home sales in 2014? No I do not. The interaction of rising interest rates (causing monthly payments to increase) and increased home values (a larger monthly payment even at static interest rates) are both impacting housing affordability and ultimately home prices. Also, as new home construction ramps up given newly developed lots coming on line and recent significant construction of multifamily rental housing, the demand pressure on existing homes will lessen, and the increase in home prices will be muted.
By the end of 2015, I anticipate the U.S. will be selling from 5.8 to 6.0 million existing homes on a SAAR using the 12-month moving average. In prices, I anticipate a 5 to 7 percent increase in the nationwide median in 2014, but not in all states or locations. Both of these forecasts are predicated on a slightly increasing rate of job growth and 30-year residential loan rates not exceeding 6.5 percent.
Other information in the NAR release included:
- First-time homebuyers made up 28 percent of the market in October, down slightly from 31 percent a year ago
- All-cash sales continued at abnormally high levels, with 31 percent of buyers last month having no loans at the closing. This is up slightly from the 28 percent level a year ago. Just a decade ago, cash sales made up from just 12 to 14 percent of the market.
- Investors accounted for one-in-five transactions (19 percent) in October, similar to the 20 percent level a year ago. Two out of every three investors paid all cash for their properties.
- Distressed transactions (short sales and foreclosures) made up 14 percent of the total October sales volume, versus one-out-of-every-four a year ago. Short sales made up just one out of every 20 transactions (5 percent) with foreclosures representing 9 percent. Short sales were discounted 14 percent when compared to non-distressed transactions, and foreclosures 17 percent. I believe everyone is surprised at how quickly distressed transactions and shadow inventory has been absorbed. Without question, rising home values have had a hand in elevating former underwater properties.
- Median time on the market was 54 days in October compared to 71 days a year ago. Foreclosures sold most rapidly with a median 46 days on the market, non-distressed took a median 53 days and short sales 93 days.
- 36 percent of homes sold in October 2013 were on the market less than one month
To read the entire press release from NAR click http://www.realtor.org/news-releases/2013/11/october-existing-home-sales-cool-but-low-inventory-drives-prices
Housing continues to recover, but I expect the pace of home price increase to slow, but still remain well above the level of inflation.
All expectations for housing, however, depend on continuing job growth.
Ted