December 2017 Headline Existing Home Growth Declines But Up For Whole of 2017

The headline existing home sales growth declined with the authors saying "new listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country". Our analysis of the unadjusted data is a bleaker picture than the headline data. 

Analyst Opinion of Existing Home Sales

The rolling averages have been slowing in 2017 - but they again marginally accelerated this month. The rolling averages are in expansion. This was the best year since 2006 - but that is not saying much as the trend lines going into 2018 are significantly slowing. Housing inventory is now at historical lows - and if you do not have enough houses for sale - then that means home sales cannot improve.

Econintersect Analysis

• Unadjusted sales rate of growth decelerated 4.0 % month-over-month, down 2.3 % year-over-year - sales growth rate trend accelerated using the 3 month moving average.
• Unadjusted price rate of growth accelerated 0.2 % month-over-month, up 4.8 % year-over-year - price growth rate trend marginally accelerated using the 3 month moving average.
• The homes for sale inventory significantly declined this month, remains historically low for Decembers, and is down 10.3 % from inventory levels one year ago).

NAR reported:

• Sales down 3.6 % month-over-month, up 1.1 % year-over-year.
• Prices up 5.8 % year-over-year
• The market expected annualized sales volumes of 5.500 M to 5.900 M (consensus 5.750 million) vs the 5.57 million reported.

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The graph below presents unadjusted home sales volumes.

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Here are the headline words from the NAR analysts:

Lawrence Yun, NAR chief economist, says the housing market performed remarkably well for the U.S. economy in 2017, with substantial wealth gains for homeowners and historically low distressed property sales. "Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand," said Yun. "At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace."

Added Yun, "Closings scaled back in most areas last month for this same reason. Affordability pressures persisted, and the pool of interested buyers at the end of the year significantly outweighed what was available for sale."

"The lack of supply over the past year has been eye-opening and is why, even with strong job creation pushing wages higher, home price gains - at 5.8 percent nationally in 2017 - doubled the pace of income growth and were even swifter in several markets," said Yun.

"Rising wages and the expanding economy should lay the foundation for 2018 being the turning point towards an uptick in sales to first-time buyers," said Yun. "However, if inventory conditions fail to improve, higher mortgage rates and prices will further eat into affordability and prevent many renters from becoming homeowners."

NAR President Elizabeth Mendenhall, a sixth-generation Realtor® from Columbia, Missouri and CEO of RE/MAX Boone Realty, says improving the new tax law is a top priority for Realtors® in 2018. "Especially in high-cost, high-taxed markets, there's still big concern that the overall structure of the final bill diminishes the tax benefits of homeownership in a way that would adversely affect home values and sales over time," she said. "As the housing market adjusts to the new law, Realtors® will be listening to their clients and communicating to lawmakers ways to ensure owning a home is truly incentivized in the tax code."

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To remove the seasonality in home prices, here is a year-over-year graph which demonstrates a general improvement in home price rate of growth since mid-2012.

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Econintersect does a more complete analysis of home prices with the Case-Shiller analysis.

The home price situation according to the NAR:

The median existing-home price for all housing types in December was $246,800, up 5.8 percent from December 2016 ($233,300). December's price increase marks the 70th straight month of year-over-year gains.

According to the NAR;

First-time buyers were 32 percent of sales in December, which is up from 29 percent in November and unchanged from a year ago. NAR's 2017 Profile of Home Buyers and Sellers - released in late 2017 - revealed that the annual share of first-time buyers was 34 percent.

All-cash sales were 20 percent of transactions in December, which is down from 22 percent in November and 21 percent a year ago. Individual investors, who account for many cash sales, purchased 16 percent of homes in December, up from 14 percent both last month and a year ago. For the year, all-cash sales averaged 21 percent of sales (23 percent in 2016), and investor sales were at 15 percent (14 percent in 2016).

Unadjusted Inventories are below the levels of one year ago.

Total housing inventory3 at the end of December dropped 11.4 percent to 1.48 million existing homes available for sale, and is now 10.3 percent lower than a year ago (1.65 million) and has fallen year-over-year for 31 consecutive months. Unsold inventory is at a 3.2-month supply at the current sales pace, which is down from 3.6 months a year ago and is the lowest level since NAR began tracking in 1999.

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Caveats on Use of NAR Existing Home Sales Data

The National Association of Realtors (NAR) is a trade organization. Their analysis tends to understate the bad, and overstate the good. However, the raw (and unadjusted) data is released which allows a complete unbiased analysis. Econintersect analyzes using the raw data. Also note the National Association of Realtors (NAR) new methodology now has moderate back revision to the data - so it is best to look at trends, and not get too excited about each month's release.

Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change. This is the best of the bad options available to determine month-over-month trends - as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).