I feel as if a lot of the recent economic news has been more positive than just a few months ago. From Bernanke saying that the recession is over for all intents and purposes to the positive results of the cash for clunkers program, it seems good news is more frequent. And finally, we are getting more good news from the real estate market.
One of the metrics of the National Association of Realtor’s (NAR) research data is existing home sales. The EHS data is a “premier measurement of the residential real estate market.” The data that NAR publishes includes the raw volume of sales and the prices of the homes sold. The types of homes included in the data include single-family homes, condos, and co-ops. The data is for the whole country and is also broken down into four separate regions.
Data Explained
As of July, the raw volume of sales has now increased for four consecutive months. The last time sales rose for four consecutive months was in June 2004. July sales were up 7.2% compared with June, and 5% from July 2008. The monthly gain of 7.2% was actually the largest on record for existing-home sales. Keep in mind that NAR has only tracked this data since 1999, though.
As far as price is concerned, the median existing-home sales price was $178,400 in July. This constitutes a 15.1% drop compared to July of 2008. This number is weighted down by distressed properties as they typically sell at 15-20% lower than traditional homes. I wrote a post recently going over 5 of the biggest losers and 5 of the biggest winners in terms of metro areas and their real estate markets. Some areas are definitely doing worse than others in terms of price, like California, Nevada, Michigan, and Florida.
“The housing market has decisively turned for the better,” said Lawrence Yun, NAR’s chief economist. “A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.”
I want to hammer this point home, so I apologize if this seems repetitive. Don’t confuse a turn around in raw sales volume with a rebound in sales price. The sales prices are being driven down to levels that make the income to housing price ratio more reasonable.
Another Large Factor
Another large factor that can’t be overlooked in the real estate market is the months of supply. This factor pretty much tells you how many months you will have a supply of houses if the sales stay consistent.
Back before the bubble, anything over 6 months was a cause for concern. Once the bubble burst, the months supply exploded to between 10 and 11 months. It has started to come down and is hanging around 9 months right now.
As you would imagine, these two factors are usually inverse related. This is logical: As housing sales go up, most likely inventory will go down. And vice versa.
Keep An Eye on NAR
Keep an eye on the NAR website I linked to. Every month they publish new national and regional data. If you are in the market for a house, you should try to stay informed about the implications of the economy on the largest purchase you will ever have to make (most likely).
By being a well informed consumer, you can make sure to get the best deal possible.
I'm MLR. After graduating from college debt free, I decided to write a blog encouraging people to adapt responsible and sensible personal finance rules.
September 22nd, 2009 at 2:20 am |
While it is great to know that real estate is performing better over the last couple of days, it is not the only indication of the current state of the economy. With unemployment rates steadily rising, the economy still looks to be in a bit of trouble.
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September 23rd, 2009 at 7:29 am |
It will be interesting to see what happens in the coming months as far as foreclosures are concerned. As the year end approaches a lot of these banks have delinquencies sitting on their books where they have been avoiding taking a bath with the foreclosure. If they can find a way to get these houses off their books they are going to do it and it may mean in increase in foreclosures.
It is a great time to buy a house, not like when I bought mine in 2005…
Kyle´s last blog ..You are Nothing Without a Good Defense
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September 23rd, 2009 at 7:59 pm |
I would like to point out that people should always be careful of the spin the NAR puts on the data. This same group was telling people in the early stages of the housing bubble-burst that everything was fine, spinning data like there was no tomorrow.
There is a lot of problems still out there. Looking forward, there is another large batch of mortgages whose rates are set to reset in 2010, which will undoubtedly lead to another huge spike in foreclosures.
There are other issues too that trouble me, like new home owners being allowed to use their $8000 first time home buyer credit toward their minimum down-payment, which minimizes their stake in the game – one of the big problems that caused the last bubble.
Just some food for thought.
My $0.02 (after taxes)
Len
Len Penzo dot Com
Len Penzo´s last blog ..Is LifeLock and Its $1 Million Guarantee A Sham?
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September 24th, 2009 at 4:56 am |
@ lender –
Over the last four months.* And most certainly it is not the only indicator of the economy, but it is an important one for a lot of reasons. One of them being that people are looking at real estate as an indicator, so where real estate goes can affect other things as well.
@ Kyle –
Ouch @ 2005. Unfortunately a lot of people got into that predicament. Do you have any source on the fact that a lot of banks sitting on delinquencies? (Please don’t get me wrong.. I’m not saying you are wrong, I’d just like to see the magnitude!)
@ Len –
Most certainly. Bias is everywhere! What the NAR did when the bubble was popping was, in my eyes, equivalent to a pilot trying to calm his/her passengers as the plane is heading into the ocean. For anyone who takes a second to evaluate the situation they will immediately see what is going on, but panic and fear can only make the situation worse. So I see where they were coming from, but you raise a good point that they have a vested interest in casting the data in a good light, so to speak. Thanks for pointing that out!
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