Why NAR's report on Existing Home Sales may look less appealing that it really is.
The National Association of Realtors (NAR) released their latest Existing
Homes Sales Report last Friday. The year-over-year comparison of
overall sales did not paint a pretty picture. NAR itself called the sales
numbers “subdued”. Other media sources used stronger
terminology.
There
is no doubt that home sales were lower this February (4.60 million) than last
February (4.95 million). However, a closer look at the report gives us some
evidence as to why that is. Last year, of the 4.95M homes sold, 25% were
distressed properties (foreclosures and short sales). This February, only 16% of
sales were made up of distressed properties.
WHY IS THIS
IMPORTANT?
Well,
if we do the math, we can see that the annualized number of non-distressed
properties sold which was revealed in the latest report (3,864,000) was
actually greater than the annualized number of non-distressed properties sold
that was reported last year (3,712,500). As we sell-off the ‘shadow inventory’
of distressed properties, there will be less homes from which a potential buyer
can choose. That will impact sales.
As
proof of this point, we can look at the months’ supply of housing inventory
available for purchase. In a normal market, a six month supply would be optimum.
However, we haven’t reached a six month supply once in over 18 months. This
shortage of inventory is the main reason sales are down.
THE GOOD
NEWS
As
prices continue to rise, more and more homeowners will be freed from the
shackles of negative or limited equity. This combined with an improving economy
will allow homeowners to again feel confident that they can sell their homes and
move on with their future plans. We are already starting to see increases in
listings coming onto the market (unsold inventory is 5.3 percent above a year
ago). Once housing inventory reaches normal levels (a 6 months’ supply) we will
again see home sales begin to increase.
