Comments on Existing Home Sales: Solid Report, Inventory near Bottom

First, the headline sales number was no surprise and not bad news (see Existing Home Sales: Expect Below Consensus Sales).

Second, I usually ignore the median price. The median price is distorted by the mix, and with more conventional sales - and more mid-to-high end sales - the median is increasing faster than actual prices (as reported by the repeat sales indexes).

The key number in the existing home sales report is inventory (not sales), and the NAR reported that inventory increased 1.9% in June from May, and is only down 7.6% from June 2012.  This fits with the weekly data I've been posting.

This is the lowest level of inventory for the month of June since 2001, but this is also the smallest year-over-year decline since June 2011. The key points are: 1) inventory is very low, but 2) the year-over-year inventory decline will probably end soon. With the low level of inventory, there is still upward pressure on prices - but as inventory starts to increase, buyer urgency will wane, and price increases will slow.

When will the NAR report a year-over-year increase in inventory?   Soon.  Right now I'm guessing inventory will be up year-over-year in September or October. 

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Another key point: The NAR reported total sales were up 15.2% from June 2012, but conventional sales are probably up close to 30% from June 2012, and distressed sales down.  The NAR reported (from a survey):

Distressed homes – foreclosures and short sales – were 15 percent of June sales, down from 18 percent in May, and are the lowest share since monthly tracking began in October 2008; they were 26 percent in June 2012.

Although this survey isn't perfect, if total sales were up 15.2% from June 2012, and distressed sales declined to 15% of total sales (15% of 5.08 million) from 26% (26% of 4.41 million in June 2012), this suggests conventional sales were up sharply year-over-year - a good sign. However some of this increase is investor buying; the NAR is reporting:

All-cash sales made up 31 percent of transactions in June, down from 33 percent in May; they were 29 percent in June 2012. Individual investors, who account for many cash sales, purchased 17 percent of homes in June, down from 18 percent in May and 19 percent in June 2012.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in June (red column) are above the sales for 2008 through 2012, however sales are well below the bubble years of 2005 and 2006.

The bottom line is this was a solid report. Conventional sales have increased sharply, although some of this is investor buying. And inventory is low, but the year-over-year decline in inventory is decreasing.

Earlier:
• Existing Home Sales in June: 5.08 million SAAR, 5.2 months of supply