The AP has a story today about how January home sales were down 7.7%. This from yesterday’s press release from the National Association of Realtors. According to them, the number of existing house sale contracts signed in January, i.e. the number of agreements made to sell a house, was down 7.7% from December. (That’s a seasonally adjusted number, something you’d have to read the footnotes to their release carefully to discover. In raw terms January sales were up 18.1% from December.)
What does this mean to you? That depends. Are you a Realtor? Then it is bad. Business is really slow. Are you an ordinary non-Realtor, perhaps a home owner concerned about the value of your largest asset or somebody interested in house prices as an important economic indicator? Then this means nothing.
The chart illustrates why you should just ignore this monthly release of hot air from the NAR. The squiggly line is their count of monthly home sales, seasonally adjusted. The smoother line is the S&P Case-Shiller 10 City Composite of house prices. If prices are what you care about, notice that the sales tally is related to prices, but not by enough to be particularly useful.
Note, for example, that sales peaked a year before prices did, in the summer of 2005. Note also the years 1999 and 2000, when sales were roughly flat but prices went up 26%.
It’s hard to attach profound meaning to house sales volume. Low sales could mean that sellers are unwilling to sell at the going rate and are holding out for higher prices. Or it could mean that buyers are unwilling to buy at the going rate and are holding out for lower prices. Or both. Or neither. Temporary dislocation in the mortgage business or uncertainty over a new government subsidy for home buyers could have also slowed things down.
The NAR press release also talks about their index of affordability, something not picked up in the media reports. Perhaps they were confused by the observation attributed to the NAR’s head:
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said it’s ironic with the weak housing market that affordability conditions have improved dramatically.
Hmmm. Low house prices making houses more affordable is ironic? Perhaps Mr. McMillan NAR’s PR guy got his SAT words confused. He meant tautological. It’s a simple mistake.