Is the pace of home sales still too low?

The volume of home sales remains low when compared to the first six or seven years of this century. Major US housing statistics, such as the S&P/Case-Shiller sales pair counts and NAR’s existing home sales, show how the number of existing home sales has slowed considerably since the beginning of the housing crisis. We update our repeat sales pairs data the last Tuesday of each month and, as seen by the chart below, volume is still low. Sales first began to slow down in 2006 after the market peaked, but really fell in 2008 and by even more around mid-2011. The latest data are for February 2012, released with the S&P/Case-Shiller Home Price Indices on April 26th.

S&P/Case-Shiller Home Price Sales Pairs. Sources: S&P Indices and Fiserv.

As we have pointed out in the past, the volatility of the lines is due to the seasonal pattern of the housing market. For both the 10- and 20-City Composites, sales volume peak around August of each year (the high points of each line, each year) and are at their lowest around February (the low points).

From 2000 until the 2006 market peak, the 10-City Composite February sales pairs ranged from about 45,000 to 70,000 and the 20-City Composite from about 70,000 to 120,000. Once the market collapsed, we saw the 2008-2012 February transaction volumes fall to about 30,000-35,000 for the 10-City Composite and 55,000-65,000 for the 20-City Composite. February 2012 reported 31,918 sales pairs for the 10-City Composite and 60,117 for the 20-City Composite, about half the pace witnessed between 2004 and 2006.

Existing home sales reported by the National Association of Realtors show the same pattern, as seen by the graph below.

U.S. Existing Home Sales. Sources: National Association of Realtors

Beginning in 2000 existing home sales rose from about 4.5 million to their late-2005 peak of 6.34 million (these data are seasonally-adjusted at annual rates). Once the market turned, sales volume fell back to a level of about 4.0 million in late 2008. From there, sales rose through 2009, largely due to the homebuyers’ tax credit. As of March 2012, existing home sales are just below 4.0 million, only marginally above their average of the prior two years. This is about the same rate seen in 1997, and far below what the housing market experienced during its 2000-2006 run-up. If you look at the full history of the data on the graph above, however, average existing home sales are only about 4.0 million, which is close to the current pace. If the height of the housing market was a true historic aberration (roughly 2003-2006), then what is the level of existing home sales that will have most market participants believe the housing market is steady? Given current market sentiment, while at the 30-year average, 4.0 million seems to be considered too low.

The posts on this blog are opinions, not advice.
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