The NAR's Latest Housing Numbers: Cutting Through the Bull

Includes: ITB, XHB
by: Markham Lee

I have to say that I've found the recent headlines around the "rise in home sales" more than just a little bit irritating, the reason for is that it's a very interpretive reporting of the real story around housing. I say interpretive because while the data they're reporting is technical correct, the headlines ignore some rather critical facts.

First off, let's aggregate the key data points from the latest report from the NAR:

Homes sales from a volume perspective rose 5.1% on a month to month basis, but were down by 4.6% on a YoY basis.

The median price of existing homes rose 0.36% on a month to month basis, while falling 15.5% on a YoY basis.

Despite the positive month to month sales numbers, housing inventory still rose by 5.2%.

Adding to the inventory problem is the fact that foreclosures rose by 30% on a YoY basis, this despite the large numbers of mortgages for which foreclosure proceedings have been temporary frozen, in addition to homeowners who are waiting for the government's mortgage rescue plan and/or having their mortgages modified by their mortgages. Since these attempts to prevent foreclosures are likely to fail, it stands to reason that there are a large number of foreclosures that are waiting in the wood work to drive up future inventory levels.

The upshot: we had a month to month improvement in some home sales metrics, an improvement that probably reflects seasonal changes and/or some other temporary change that doesn't disabuse the longer term trend. As a result it's not as valid as the overwhelming negative YoY numbers, especially when you consider the foreclosure and inventory data.

However what we saw last month could be an indicator of what the housing "recovery" could look like: a situation where the volume of home sales is on an upward climb, but prices stay stagnant due to the long-term effects of proper lending standards, more sensible expectations and higher inventory.

The media and the NAR can massage the data all they want, but prices aren't going to level off (or climb upwards) until inventories and foreclosures start decreasing. In my view the metrics that need to be paid the most attention to are: inventories, foreclosures and % of owner vacancies vs. their historical levels.

You can read more on the subject here (FT) and here (NYT).


The NY Times: "Unexpected Jump in Home Sales in February" -- Jack Healy, March 23, 2009

The Financial Times: "US home resales show surprise rise in February" -- Alan Rappeport, March 23, 2009

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.