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More reasons not to believe the NAR

Thursday, June 25, 2009

In addition to dubious assertions the other day about property assessors coming in too low with their valuations, thus thwarting a rebound in home prices, the National Association of Realtors (NAR) also reported a stunning decline in the percentage of distressed sales, a development that prompts the update of the chart below, first presented back in February.
IMAGE What this chart does is back out the percentage of sales classified as "distressed" in the NAR's monthly report on existing home sales, which results in a trend that looks very similar to that of new home sales, what has confounded homebuilders over the last couple years.

That is, up until last month, when distressed sales plunged!

And, after some rudimentary math, non-distressed home sales must have surged, as shown above.

Did non-distressed sales really surge last month?

That's essentially what the realtors' trade group said on Tuesday because overall sales were about flat in May, but the percentage of distressed sales tumbled from 45 percent in April to just 33 percent in May, down from over 50 percent in March.

Moreover, the current level of distressed sales is now below the level that was seen when this statistic was first reported last fall.

Does that really make sense given the waves of foreclosed properties that continue to hit the market or is the decline a little bit of "stretching the truth" for a statistic that surely does not have the reporting rigor of, say, the total number of homes sold?

A smaller number of "distressed" sales might make the real estate market as a whole seem a little bit less distressed itself and might even serve to stir some of the "animal spirits" of homebuyers who might otherwise be a bit put off with such a high number of bank-owned properties being sold.


Note: As described previously, prior to late-2008 when the NAR first started reporting these figures, distressed sales were estimated at two percent from 2002 to 2004, increasing linearly to 5 percent in 2005, 10 percent in 2006, 20 percent in 2007, and then 37 percent in September 2008 with the first of the realtors' data.


UPDATE - June 25th, 11:50 AM PST:

This just in from Bloomberg:

About 73 percent of all existing houses and condos sold in the Las Vegas-Paradise area were foreclosures last month, up from 56 percent a year earlier, and such sales accounted for 51 percent all existing-home transactions in California, MDA DataQuick said. Foreclosure sales represented 40 percent of California resales a year ago, the research company said.
Granted, the whole nation is not like California and Las Vegas, but that's a huge increase in "distressed" sales that need to be offset in other parts of the country for the NAR to be correct.



Economy said...

both lines refer to the left side of the chart for the values.

Ted S. said...

Existing home sales are the bigger number, but it looks as though it's already been corrected.

Tim said...

Yes, it has.

Anonymous said...

REALLY! On what planet did the percentage of foreclosure sales drop by more than 50 percent over the last two months!

Economy said...

I'd like to see a statistic on time from last sale. My guess the existing home sale spike are homes that are priced to market (and therefore likely prior distressed homes that are being flipped?)

It seems like most homes with huge negative equity have to go through the "distressed" phase before they can be sold "normally".

Scott said...

I think this spike is there because people usually buy more during April-August....Once these months pass by, we will see the same housing market again.

The job losses are making it worse.

Government is doing a lot to help the market but the results are not impressive.

Tom said...

Agreed with Scott..thanks for the article

Ted S. said...

These figures are seasonally adjusted, meaning, there is no increase in the chart during the summer when sales increase. This is one of those data series that would be useless without seasonal adjustments because the number of sales in July is about ten times the number of sales in January. If this seasonal pattern wasn't taken into account, the graph would look like one of those earthquake Richter charts.

Tim said...

Again, well stated Ted - you're getting very good at this. Pretty soon you won't need me around here...

Anonymous said...

As reports from NAR suggests that "existing U.S. home sales rose in April 2.9 percent to a seasonally adjusted annual rate of 4.68 million units during the month.However,there were 292,000 new homes for sale at the end of May, down more than 2 percent from April. More than half have been on the market for almost a year."

I think this clearly indicates that the housing market crash is far from being over.

Recently read a really interesting article on this topic

AtlanticBodyboard Shop said...

The NAR is corrupt as can be!!!

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