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Don’t Believe Everything You Read

Many headlines in the media right now are proclaiming the total collapse of the housing market. What makes it seem very believable is the headlines are based on two reports from the National Association of Realtors (NAR): the Existing Home Sales Report and the Pending Home Sales Report. However, all is not what it seems.

Both reports look at two different sets of data:

  • A year-over-year comparison of transactions (Y-O-Y)
  • A month-over-month comparison of transactions (M-O-M)

The negative headlines you have been reading are based on the Y-O-Y statistics. They are horrific. There is a logical explanation for this however. Last year, at this time, we were headed toward the expiration of the Homebuyer Tax Credit, one of the greatest buyer tax incentives in American history. There were people rushing to get their home into contract and/or to a closing. This dragged demand forward. People who would have normally closed later in the year moved their closing up in order to take advantage of the tax credit. Comparing sales in the first four months of this year to the same time last year wouldn’t be comparing similar situations. That wouldn’t make sense.

A better way to judge the market at this time is to compare month-over-month sales. Here is a graph showing the increase in pending sales over the last twelve months.

As we can see, sales dropped dramatically after the expiration of the tax credit in April 2010. Then sales began to slowly rebuild and are now increasing nicely.

Bottom Line

The market is gaining momentum not losing ground. Headlines sell papers. Actually knowing what is truly happening in the real estate market is what’s important.


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8 replies
  1. Lilly
    Lilly says:

    A bigger headline would have been for the media to promote the upswing as you point out, but the reporters are seeing it differently. 

    However your chart shows equally no reality because we don’t know what values are associated with the numbers. And of course with such a generalized chart, how many of those homes were foreclosures and short sales?  I’ll net when you break the numbers out you’ll see a different story.   

    Reply
  2. Steve Harney
    Steve Harney says:

    @Lilly,
    Thanks for the comment. The chart was created from data in the Pending Home Sales Report that is actually linked in the blog itself. You can check out the methodology NAR used by simply clicking on the link and reading the report. As far as what % are distressed properties, we’re not sure why that matters as we are reporting that sales are up. However, since you asked, the number has been running between 35-40% nationally the last several months.

    Reply
  3. Bridget Walker
    Bridget Walker says:

    Awesome information. So true! Once again the media tries to drag down the real estate market. It’s booming in Austin. Comparing anything to this time last year.. when I had tons of people pushing to close by the cut off is ridiculous and not apples to apples. Great info Jay.

    Reply
  4. Lilly
    Lilly says:

    The % of sales of distressed properties and who is buying them is a concern to anyone who wants a complete and honest picture of what the market is really happening in the market, but doing so for most would be counter to their argument, just as what happened here in a previous post when important info was left out regarding the location of shadow inventory. This is typical NAR tactics.

    Reply
  5. jim
    jim says:

    It will/would be interesting to know how many of those “pending home sales” actually close. Not enough mention of borrowing hurdles/trends in all of this data.

    Reply

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