Friday, January 4, 2008

Existing Home Sales Ticked Up in November

According to the NAR the sale of existing homes ticked up in November over October by 0.4%. My first question is: is this increase of about 1,667 home sales over October statistically significant. That is does this number exceed the sampling error inherent in the analysis. My second question is: is this increase just due to a random component in the time series. All time series, that is data that is a function of time, are made up of four components or a trend, seasonal, cyclical, and random component. So if numbers go down for eight months in a row the random component will eventually net an increase. You commonly see this in declining stock prices. One day for some reason (usually random) a declining stock will close up.

Regardless the increase in November is fairly weak. The original article is from the WSJ. The following link is the original press release from the NAR. I found the NAR press release unbelievable in its optimism. Check out the graph below, after three years of declines what in the data indicates stabilizing home sales.

Sales of existing homes managed a small increase in November from October, their first rise in nine months, but prices fell. And while the supply of unsold homes declined, it remains bloated.
Existing homes sold at an annual rate of five million in November, up 0.4% from October's 4.98 million pace, the National Association of Realtors said.

"Given stress in the mortgage market and depressed buyer sentiment, we judge this to be a brief respite and look for sales to fall further," said Lehman Brothers economist Michelle Meyer.

Striking a more optimistic note, the association's chief economist, Lawrence Yun, said, "Near term, existing-home sales should continue to hover in a narrow range, just as they have since September, and that's good news because it will be a further sign that the housing market is stabilizing."

The median price of a previously owned home fell 3.3% to $210,200 in November from $217,300 a year earlier.

The increase in existing-home sales was the first since February 2007. The Realtors group said disruptions in mortgage availability and pricing peaked in August, which caused sales to slow in subsequent months.

Inventories of homes available for sale fell 3.6% to 4.27 million at the end of November, a 10.3-month supply at the current sales pace -- high by historical standards.

"The supply-demand balance remains decidedly unfavorable for pricing," said Haseeb Ahmed, an analyst at J.P. Morgan Chase.

Falling prices tend to discourage people from putting property on the market. And declining home values can put a chill on consumer spending, which makes up 70% of U.S. economic activity; people feel less wealthy and spend less, analysts say.

"Given the weakness in home prices, the huge inventory of unsold homes, the recent tightening in the mortgage market, and the virtual elimination of the subprime market, further significant declines are coming," wrote Insight Economics chief economist Steven Wood, in a note to clients. "The housing correction is definitely not complete."

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