Tag Archives: Bureau of Economic Analysis

CR: Understanding the Existing Home Sales Report

Understanding the Existing Home Sales Report

by Bill McBride on 1/23/2013  

The reporting on the Existing Home sales report was pretty negative yesterday even though I thought it was a solid report. And some of the positive reports were about prices – the NAR reported “The national median existing-home price for all housing types was $180,800 in December, which is 11.5 percent above December 2011” – and I completely ignore the median price.  What gives?

First, on prices, the median is impacted by the mix, and the mix changed in 2012 with fewer low end foreclosures.  I think the median price should be ignored during periods when the mix is changing (with all the repeat sales indexes available, I mostly ignore median prices all the time).

And on sales, the lead for many articles was that seasonally adjusted sales declined in December compared to November, and that sales were below the consensus forecast.   There were some suggestions that this called into question the “housing recovery”.   Nonsense.

What is a “housing recovery”?  There are really two recoveries: House prices and residential investment.  Most people – homeowners and potential buyers – focus on prices, and for prices we should use the repeat sales indexes, and not the NAR median price (repeat sales indexes include Case-Shiller, CoreLogic, etc).  What matters in the NAR report for prices is inventory and months-of-supply.  And inventory is at the lowest level since January 2001, and months-of-supply fell to 4.4 months – the lowest since May 2005.

But for GDP and jobs, the key is what the Bureau of Economic Analysis (BEA) calls “residential investment” (RI) .  For existing homes, only the broker’s commission is part of GDP, but for new homes the entire sales price is part of GDP.  There are some spillover effects from home sales (furniture, landscapting, etc), but those aren’t included in RI.

Residential Investment ComponentsClick on graph for larger image.

This graph shows the components for RI as a percent of GDP. According to the BEA, RI includes new single family structures, multifamily structures, home improvement, broker’s commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Right now home improvement is the largest category, but new single family structures will be the largest component soon.  Broker’s commissions is usually the third largest category and is relatively small compared to single family investment and home improvement.

So if existing home sales decline there is a minor impact on RI and GDP.  When we talk about the “housing recovery” for jobs and GDP, existing home sales are mostly irrelevant – the focus should be on new home sales, housing starts and home improvement.

On home improvement, from the NAHB: Remodeling Market Remains Strong in the Fourth Quarter

The Remodeling Market Index (RMI) reached 55 in the fourth quarter of 2012, increasing five points from the previous quarter, according to the National Association of Home Builders (NAHB). This is the highest reading since the first quarter 2004.

An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.

“Remodelers are optimistic about the outlook for slow and steady market growth in the new year,” said 2013 NAHB Remodelers Chairman Bill Shaw, GMR, GMB, CGP, a remodeler from Houston. “Professional remodelers reported more work from large and small projects as well as overall home repair.”

Finally, as I mentioned yesterday, as the number of distressed sales decline, the number of total sales might decline too – but we need to look at the number of conventional sales – and conventional sales have been increasing.  That is probably a sign of a healing market.

I don’t expect much of an increase in existing home sales in 2013, and I wouldn’t be surprised by a decline depending on the number of foreclosures this year. But I think the housing recovery will remain fairly strong with new home sales and housing starts up sharply again this year.

Read more at http://www.calculatedriskblog.com/2013/01/understanding-existing-home-sales-report.html#8L4G2HQkf3Tf4D2h.99

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JCHS: Sizing Housing’s Role in the Economy Before and After Recessions

Sizing Housing’s Role in the Economy Before and After Recessions

by Dan McCue
Research Manager
The most direct measure of housing’s impact on the economy is Residential Fixed Investment (RFI). RFI includes spending on construction of new housing units and manufactured homes, as well as improvements spending, brokers’ commissions on the sale of residential property, spending on some types of built-in equipment (such as heating and air conditioning equipment), and also net purchases of residential units from the government.
In any single period of time, RFI is a modest part of the total output of the US economy as measured by gross domestic product (GDP). According to the US Bureau of Economic Analysis’s National Income and Product Account (NIPA) tables, which provide quarterly GDP data for most series dating back to 1947, RFI has on average represented just 4.2% of the economy. In terms of economic growth, however, growth in RFI can have influence that far exceeds its share of the economy (Figure 1). This is particularly the case in the time periods around recessions, when decline or growth in RFI can account for 15 or even 20 percent of overall decline or growth in GDP – enough to push the economy into or out of a recession (seeLeamer (2007) “Housing IS the Business Cycle“). Prior to the Great Recession of 2007-9, for example, the preceding downturn in RFI alone shaved fully 1 percentage point off of GDP.
 1219_mccue_figure1
Note: Shaded areas are recessions.

Source: JCHS tabulations of BEA and NBER Business Cycle data.In the five recessions that occurred prior to the Great Recession between 1970 and 2001, housing construction was both a drag on the economy leading into the recessions and a buoy immediately afterwards (Figure 2). In the four quarters leading into each of these recessions, RFI’s contribution to GDP growth was normally negative, ranging from a mild -0.1 percentage point prior to the 2001 recession up to a half a percentage point drag on GDP prior to the 1980 double-dip recession. Following these recessions, RFI’s influence not only returned positive, but its positive contribution to GDP growth generally skyrocketed to several multiples above normal. The average percentage point contribution of RFI to GDP growth ranged from 0.3 to 1.1 percentage points in the first year after each of the past five recessions. Such growth in RFI during those periods equated to about one-fifth of all GDP growth at the time – a nice boost to the economy.

RFI’s positive contribution to GDP following the Great Recession has been nowhere near those seen after past recessions. As shown in figure 2, while RFI’s drag on GDP heading into the Great Recession exceeded that heading into any recession since 1970, RFI provided just 0.1 of a percentage point to GDP in the first four quarters after the recession, and was still providing negligible impact fully nine quarters after the recession officially ended. However, the third quarter of 2012 marks 13 quarters after the Great Recession, and RFI’s impact to GDP over the past year has been consistently positive on the order of 0.3 percentage points, or about 12 percent of current GDP growth. With housing construction starts rising, the positive economic contributions of RFI will follow.

1219_mccue_figure2

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