The National Association of Realtors’ June 21 release of existing home sales information for the month of May, 2012, was a mixed bag, but overall the news for remodelers is good. Here are the main takeaways:
The Facts: Existing home sales declined 1.5% in May compared with April, but year-over-year existing home sales showed 9.6% improvement. (“Existing homes” include single-family homes, townhomes, condominiums, and co-ops.)
Our Take: Month-to-month comparisons are not the most reliable measure, because such short-term figured are easily affected by weather, holidays, and other factors. The more significant comparison is to the same month in the prior year, and the 9.6% increase on this front is very good news. This means that the level of total home sales is higher this year than last, and remodeling and replacement activity directly correlates with the volume of home sales. This year-over-year improvement is now an established trend. In the release, Lawrence Yun, chief economist at NAR, says, “Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier.”
The Facts: Inventory shortages rather than decreasing demand is responsible for May’s slight 1.5% drop from the prior month, according to the NAR release.
Our Take: According to the release, listed inventory is 20.4% below the level of a year ago (6.6-month supply in May 2012 compared with 9.1-month supply in May 2011). This observation is consistent with what we have seen throughout the spring. A shortage in supply has led to multiple bids on listed homes in many markets in the country.
The Facts: Median existing house price rose 7.9% in May to $182,600. This is the third consecutive month of year-over-year price increases, according to the release, something that hasn’t happened since the period from March to May in 2006.
Our Take: Shortages are partly responsible for rising prices, which in turn are stimulating would-be buyers to get off the fence. Prices are rising in all sales types—new, resale, and REO (distressed). This is good news for remodelers because higher prices build confidence, support positive appraisals, and raise the equity value of existing homes so owners can finance and feel more comfortable about investing in remodeling.
The Facts: Distressed sales in May fell to 25%. This figure was 28% in April and 31% last May.
Our Take: Foreclosures are falling and banks are depleting the distressed inventory they have on their books. Many markets are past the peak of distress and moving rapidly in a healthy direction.
The Facts: All-cash sales are down from 29% in April to 28%; they were 30% last May. Investors sales, which account for most cash purchases, are down from 20% to 17%.
Our Take: Investor activity over the last two years has been a key reason markets are getting back to healthier conditions. But the decline in investor sales should continue if prices keep rising, because there isn’t as much potential profit to be made from flipping properties. Rents should also start falling as the rental capacity expands. Decreased investor activity should mean more remodeling activity, because investors don’t put as much into home improvement as owner occupiers do.
See also, “Sales Show Housing’s Fragile Recovery”