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Why is Real Estate So Confusing Today?

May Shows a Continued Strong Pace for Existing Home Sales

–  National Association of Realtors (NAR) June Existing Home Sales Report headline

Is May’s Home Sales Decline an Alarming Signal of What’s to Come?

– headline of an article in Housing Wire

Both of the above headlines appeared this past Wednesday. They seem to be reporting conflicting news as NAR speaks of a ‘continued strong pace’ while Housing Wire showed ‘alarm’ regarding the ‘sales decline’. How can two different news reports say exact opposite things on the same day? The most amazing thing is that both articles were written about the same report – NAR’s Existing Home Sales Report. And, both headlines were correct!

There are nuances in the report and both media sources decided to report on a different nuance. NAR correctly announced that sales were up and they were. This May’s sales were up over 19% from May of last year. Housing Wire showed alarm that sales had dropped and they did. Sales in May were 2.2% lower than they were last month (April).

If you are either buying or selling a home, the headlines can be very confusing. It may seem that the housing market is going up and down at the same time. Let me bring some clarity to reports you will see throughout the summer on the two key issues in real estate.

SALES

This one could drive you crazy. NAR will issue two reports each month. One is the Pending Home Sales Report which covers the homes that go into contract the previous month. The other is the Existing Home Sales Report which covers the houses that closed the previous month. The Existing Sales report will deliver great news over the summer as it will be reporting on the homes that are currently closing but went into contract before the tax credit expired (April 30). The Pending Sales Report will report on houses going into contract after the expiration of the tax credit. Those numbers will not be anywhere as strong. Since both will be released each month, it will seem like conflicting news.

PRICES

This is another item that will lead to confusion over the next few months. First, each pricing report (there are seven major reports) measure different data. Some look at the price per square foot, some look at like houses and others just look at average sales price. Some look at data as recent as one month ago and others look at data that is three months old. Some look at homes only up to certain price points and others look at all price points. Since they are not comparing apples-to-apples, there will be many differences in their reports.

There can even be confusion if they are looking at only one data point. Let me give you an example that is happening right now: average sales price. There are some reports saying that the average price of homes selling is increasing and they are correct. That does not mean however that prices on individual homes are increasing. If more first time homes were purchased in April because of the tax credit, prices would be relatively low because the first time buyer often buys entry level homes in the community. If, in May, more second time buyers were purchasing their move-up home, the average price in that region would increase. That does NOT mean the average price of entry level homes would increase. It just means that the ‘mix of homes’ sold weighed more heavily to the second time (and more expensive) home.

What does this mean to you?

Whether you are buying or selling, I strongly suggest you sit down with a professional who is capable of explaining the headlines and informing you how the news will actually impact your outcome.

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