A plethora of housing reports are readily available to today’s consumer. This month in STAT we’ll discuss three recently published reports. We reference these reports not to share their insights, but to accentuate the importance of local knowledge. The ability of the real estate professional to properly understand and evaluate local market conditions, and then convey that knowledge to their clients, is tantamount to success.
The very nature of housing market reports, specifically month-over-month comparisons, lead to overly optimistic conclusions in the spring and overly pessimistic conclusions in the fall. They fail to recognize the significant impact of seasonal factors. We’re now in October, and as happens each year, housing reports turn negative.
There were three recently published reports by three different national economists garnering headlines such as, “The Truth Behind Housing Data”. The consensus of these reports is that existing home sales acutely disappoint, new construction has flatlined and home sales have stalled. Here’s a brief quotation from each report.
- Svenja Gudell of Zillow, “New home sales ended the summer on a very weak note, and it’s time we stopped sugarcoating the truth with this data.”
- Lawrence Yun of Nar, “Pending home sales sank in August for the fifth time in six months.”
- Dr. Frank Nothaft, chief economist for CoreLogic, “While growth in home sales has stalled due to a lack of inventory during the last few months, the tight inventory has helped stabilize price growth.”
Zillow
The Zillow report was based on a September 26, 2017 report from the U.S. Census Bureau and the U.S Department of Housing and Urban Development that details new residential sales statistics for August 2017. The most interesting facet of the Census Bureau report was the disclaimer at the bottom. Here are a few samplings from the disclaimer:
- “These statistics are estimated from sample surveys. They are subject to sampling variability as well as non-sampling error including bias and variance from response, nonreporting, and under-coverage.”
- “Changes in seasonally adjusted statistics often show irregular movement. It takes 6 months to establish a trend for new houses sold. Preliminary new home sales figures are subject to revision due to the survey methodology and definitions used.”
- “The survey is primarily based on a sample of houses selected from building permits. Since a “sale” is defined as a deposit taken or sales agreement signed, this can occur prior to a permit being issued. An estimate of these prior sales is included in the sales figure.”
Maybe the report should have plagiarized a further disclaimer from the pharmaceutical ads during the evening news, “If a headache persists for over four hours after reading this, please consult with a physician.” After reading the Zillow analysis as well as the report from the U.S. Census Bureau, I agree with the conclusion. It’s time we stopped sugarcoating the truth about this data.
At The Information Market, we don’t track national new home builds and we don’t worry about sampling variability. We simply count each newly constructed home in Maricopa County sold on a daily basis. We identify new builds using a variety of means, algorithms and data points. It’s not perfect, but it’s darn close. In STAT we’ve been talking about a need for more new construction for years, particularly at the entry level. We’ve also been reporting steady improvement in our new construction numbers over the last three years. While we’re not experiencing the 2,500 new builds per month like we did in the late nineties, we are seeing improvements of 18.44% and 31.39% over the past two years and 19.84% for the first nine months of this year. I don’t believe anyone would describe a
nearly 20% year-over-year gain as flatlining. By their own admissions, homebuilders have been facing labor, material, and land challenges. However, if the recent surge in homebuilder’s stocks coinciding with their third quarter earnings reports are any indication, new construction is trending in the right direction.
NAR
Like the NAR report, we too are reporting year-over-year pending home sale declines for the fifth time in six months. However, our conclusions are slightly different. In early 2017 we began seeing a new trend emerging in our data. I believe there is a new dynamic inside the data and that something has changed as to how the agents are reporting their pending contracts. There used to be a strong relationship between the under-contract count and the monthly sales count the following month.
In 2017, we’ve seen a 1.01% decline in year-over-year pending contracts and a 6.75% increase in homes sold (as shown in the spreadsheets and charts below). Public records data in Maricopa County gives us similar results with an 8.37% increase in total homes sold. Remember, public records data includes new builds and only 1 in 4 new builds are listed on the MLS.
CORE LOGIC
Both the NAR and Core Logic economists attribute declining home sales to lack of inventory. We can all agree overall supply is low. The chart below displays ARMLS inventory numbers for the past two years.
However, what you share with your clients as to current market conditions cannot be based on the broad spectrum of the entire market. National reports will be of no value when you’re speaking with a client. You need to be specific to the individual homeowner and their neighborhood. The chart below, provided by our friend and colleague Michael Orr, clearly shows the divergence in inventory levels based on one very important attribute: price point. The expectations you set for a seller at a $250,000 price point is going to be worlds apart from a seller in the $1,000,000 range.
Conclusion
Finally, of all the conclusions drawn in the three reports above, the one that leaves me scratching my head is the theory that tight inventory can help stabilize price growth. If any reader out there can explain this phenomenon, please share. Over here at STAT, we’ve seen prices stabilize but, as discussed in prior reports, our home prices historically stabilize this time of year.
I’ll leave you with a story about the dangers of blindly going off the numbers. Three economists went out hunting and came across a large deer. The first economist fired, but missed by a meter to the left. The second economist fired, but missed by a meter to the right. The third economist didn’t fire, but shouted in triumph, “We got it! We got it!”
The ARMLS Pending Price Index (PPI)
Last month STAT projected a median sales price for August of $239,900. The actual median sales price was $241,700, missing the mark by less than 1%. We had projected home closings in the 7,500 range. The final sales volume was 7,328, a difference of 172 sales. There was one more business day in September 2016 than September 2017. Looking ahead to October, the ARMLS Pending Price Index anticipates the median sales price will be $245,000. It’s not unusual for the median sales price to stabilize in the fall months as seasonal patterns take hold. Our median sales price hit its high watermark for the year in June at $245,000.
Sales volume in September was 7,328, the same as the 2016 total of 7,328. Sales volume for the first nine months of 2017 was 6.75% higher than 2016, with 72,475 sales in 2017 compared to 67,892 for the first nine months of 2016. Like September, we enter October with fewer residential listings practically under contract. We begin October with 5,860 pending contracts, 3,363 UCB listings and 460 CCBS giving us a total of 9,683 residential listings practically under contract. This compares to 10,134 of the same type of listings one year ago. Even with fewer pending listings this year compared to last, I expect the October sales to be higher than the 2016 volume. ARMLS reported 6,981 sales in October of 2016.
STAT Data: September 2017 from ARMLS on Vimeo.
