Comments on Existing Home Sales

As expected, existing home sales declined in September, and I expect further declines over the next several months. From the NAR:

NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said there are far-ranging consequences from the repeating stalemates in Washington. “Just one impact of the recent government shutdown – delays in tax transcripts needed for approval of mortgage loans – put a monkey wrench in the transaction process and could negatively impact sales closings in next month’s report,” he said.
emphasis added

But lower existing home sales, and slower price appreciation, doesn't mean the housing recovery is over. What matters for jobs and the economy are new home sales, not existing home sales.  And I expect the housing recovery to continue.

The big story in the NAR release this morning was that inventory was now up 1.8% year-over-year in September.    Inventory is still very low, but year-over-year inventory has now turned positive, and I expect inventory to continue to increase. 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.

Click on graph for larger image.

The NAR does not seasonally adjust inventory, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory (see graph of NAR reported and seasonally adjusted).

This shows that inventory bottomed in January (on a seasonally adjusted basis), and is now up about 7.5% from the bottom. On a seasonally adjusted basis, inventory was up 2.3% in September, even though the NAR reported inventory was flat (usually inventory declines in September).

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 10.7% from September 2012, but conventional sales are probably up close to 25% from September 2012, and distressed sales down.  The NAR reported (from a survey):

Distressed homes – foreclosures and short sales – accounted for 14 percent of September sales, up from 12 percent in August, which was the lowest share since monthly tracking began in October 2008; they were 24 percent in September 2012.

Although this survey isn't perfect, if total sales were up 10.7% from September 2012, and distressed sales declined to 14% of total sales (14% of 5.29 million) from 24% (24% of 4.78 million in September 2012), this suggests conventional sales were up sharply year-over-year - a good sign. 

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

Click on graph for larger image.

Sales NSA in September (red column) are above the sales for 2007 through 2012, however sales are well below the bubble years of 2005 and 2006.

Earlier:
• Existing Home Sales in September: 5.29 million SAAR, Inventory up 1.8% Year-over-year