Home Sales: More Reasons to Disbelieve the NAR

In addition to dubious assertions the other day about property assessors coming in too low with their valuations, thus thwarting a rebound in home prices, the National Association of Realtors (NAR) also reported a stunning decline in the percentage of distressed sales, a development that prompts the update of the chart below, first presented back in February.
What this chart does is back out the percentage of sales classified as "distressed" in the NAR's monthly report on existing home sales, which results in a trend that looks very similar to that of new home sales, what has confounded homebuilders over the last couple years.

That is, up until last month, when distressed sales plunged!

And, after some rudimentary math, non-distressed home sales must have surged, as shown above.

Did non-distressed sales really surge last month?

That's essentially what the realtors' trade group said on Tuesday because overall sales were about flat in May, but the percentage of distressed sales tumbled from 45 percent in April to just 33 percent in May, down from over 50 percent in March.

Moreover, the current level of distressed sales is now below the level that was seen when this statistic was first reported last fall.

Does that really make sense given the waves of foreclosed properties that continue to hit the market or is the decline a little bit of "stretching the truth" for a statistic that surely does not have the reporting rigor of, say, the total number of homes sold?

A smaller number of "distressed" sales might make the real estate market as a whole seem a little bit less distressed itself and might even serve to stir some of the "animal spirits" of homebuyers who might otherwise be a bit put off with such a high number of bank-owned properties being sold.

Hmmm...

Note: As described previously, prior to late-2008 when the NAR first started reporting these figures, distressed sales were estimated at two percent from 2002 to 2004, increasing linearly to 5 percent in 2005, 10 percent in 2006, 20 percent in 2007, and then 37 percent in September 2008 with the first of the realtors' data.

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UPDATE - June 25th, 11:50 AM PST:

This just in from Bloomberg:

About 73 percent of all existing houses and condos sold in the Las Vegas-Paradise area were foreclosures last month, up from 56 percent a year earlier, and such sales accounted for 51 percent all existing-home transactions in California, MDA DataQuick said. Foreclosure sales represented 40 percent of California resales a year ago, the research company said.

Granted, the whole nation is not like California and Las Vegas, but that's a huge increase in "distressed" sales that need to be offset in other parts of the country for the NAR to be correct.

Comments

[Dave Wrixon:]

I think it is fair to say that a lot of Banks are refusing foreclosure as that would result in realizing losses that they have finessed into oblivion with the revision to the accountancy rules. This is clearly distorting the statistics even if it has no real bearing on reality.

Jun 25 04:10 PM

[conceptwizard:]

The banks are sitting on over 600,000 forcelosed homes. This very amply distorts all the numbers. Their is a gap between total houses foreclosed and those that have been listed according to RealtyTrac.

Jun 25 04:34 PM

[Harry Tuttle:]

I heard another interesting statistical quirk today. "Average prices may go up in the near future as the number of foreclosures of more expensive homes goes up."

There are lies, damned lies, and statistics.

The fact is that the real estate market continues to be depressed.

Jun 25 06:46 PM

[OptimizedPrime:]

@Harry -- A misleading statistic but probably coming soon to RE shills near you. The high-end is about to collapse as prices have resisted the inevitable for too long.

The high-end is in bigger trouble than the low-end as there are no move-up buyers (no equity in previous homes), no loans available (for the very high-end i.e. over the $750k conforming limit) and the "less exotic" (but still suicidal) loans that drove high-end purchases are only starting to come due for recasting.

Most homeowners that weren't born yesterday will walk away from an underwater situation and build up their credit and down payment to buy another decade.

Look for median prices in places like NYC and the Bay Area to "jump" as formerly $3m homes are poached for $1m. The overall volume will be pretty small but the overall volume is so small that ANY segment might drive the overall number.

It's more like, "there are lies, damn lies, and misinterpretations of statistics"...


OP

Jun 25 07:30 PM

[rm:]

Does NAR compile the CPI, as well?

Same advisory board, maybe.

Jun 26 10:22 AM

[MartyT:]

Thanks for the great post, I enjoyed reading it.

"Did non-distressed sales really surge last month?"

I surely don't know the answer to this question, but I do think it's possible. I've noticed that the price gap between distressed and non-distressed homes tends to be in the 10-20% range in most of the neighborhoods that I watch. I think a lot of buyers are starting to realize that a 160K home in a 200K neighborhood that has gone through a foreclosure will probably cost more than 40K to be as nice as the 200K home. In addition getting financing for the 160K repo can be more difficult than getting financing for a well maintained 200K home in the same neighborhood.

In my area if a home is not maintained for a couple of years one can be pretty sure that termites, carpenter bees, or some other natural pest will have done massive damage to it.

So if one is moving into the area they may very well be passing up on a 20% savings for a broken down distressed home in favor of a well maintained home.

Just a thought...

Jun 26 11:51 AM

[The Systems...:]

Tim - A good article and statistical presentation. However, the residential market was in a unrecedented boom in the early years of the data presented, and currently we are in an unprecedented period of bust in the housing market. So data presentation of the last 8 years just covers periods of wild aberration. As such, it would be much more informative to review 20 or 30 years of the data you have presented so that historical norms are understandable, and current assessments are more soundly considered.

Jun 26 12:57 PM

[Gregman2:]

Hey, Tim...Come on! Things have never looked better! Business is booming, especially in the repo market. Demolitions are up. Labor's cheap. It's boom time. Put on your happy face, and let's get you into a cheap new home.

Jun 26 05:34 PM

[Zmartmoney:]

What's really interesting from looking at the industry from the inside is this: Banks lately are VERY difficult to deal with on foreclosed property. Apparently they laid everyone off whose job it was to handle those matters, because they are NOT being handled. You can sit for months waiting for a reply from them on your offer, with no sign of life/pulse, etc to give you an idea of whether they've forgotten you exist, or forgotten the home exists, whatever. They're just sitting there. What's that about? The rumor around is that they're waiting for more govt intervention. Anyone heard a better rumor? That one doesn't quite wash.

Jun 29 11:29 PM