Tag Archives: Lawler

Lawler: On the relationship between pending home sales and closed sales

Lawler: On the relationship between pending home sales and closed sales

by Bill McBride on 8/30/2012  

Yesterday the National Association of Realtors reported that its “National” Pending Home Sales Index increased by 2.4% on a seasonally adjusted basis in July to its highest level since April 2010.

The NAR’s PHSI did not signal the “dip” in June/July closed existing home sales, for reasons that are difficult to discern. It’s not easy to figure out “fallout” rates from the PHSI for several reasons: first, the PHSI is an index number with 2001 “activity” equal to 100, making numerical comparisons to the NAR’s existing home sales estimate difficult, especially since there is a “discontinuity” in the NAR’s existing home sales methodology in 2007; and second, the NAR’s PHSI is based on a sample size not much more than half that used to estimate existing home sales. To really delve into the relationship between pending sales and closed sales, one needs to get local data—which unfortunately isn’t available to the public in that many places.

Closed and Pending Home SalesClick on graph for larger image.

CR Note: This graph from Tom Lawler shows Pending and Closed home sales since January 2008. For this graph, Tom Lawler set both series to 100 in 2008.

More from Lawler: For fun, however, I looked at pending sales vs. closed sales data reported by MRIS for the mid-Atlantic region. While I have limited historical data, that data suggests that (1) contract fallout over the past two and a half years is up considerably from earlier periods; and (2) that increased fallout coincided with a significant increase in the share of pending sales that were “contingent. Other MRIS data/analyses suggests that a rise in the share of pending contracts that are short-sales, which (1) take much longer time to close; and (2) which have very high contract fall-out rates, has significantly impacted the relationship between pending sales and closed sales.

MRIS Closed and Pending Home SalesHere is a chart showing closed home sales by MRIS for the mid-Atlantic region compared to lagged new pending contracts, using a weighting of 60% for the previous month and 40% for two months earlier.

This chart suggests that over the last two years the number of closed home sales has been significantly lower than one would have expected based on the past relationship between past new pending sales and closed sales. While not shown here, a more “sophisticated” look at leads and lags suggests that the reason is not simply delayed closings, but is mainly contract fallout.

CR Note: It appears short sales are distorting the relationship between pending and closed sales, and the “pending home sales” report should currently be taken with an extra grain of salt.

Read more at http://www.calculatedriskblog.com/2012/08/lawler-on-relationship-between-pending.html


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How can builder confidence improve, single family starts increase sharply, and new home sales be unchanged?

How can builder confidence improve, single family starts increase sharply, and new home sales be unchanged?

by CalculatedRisk on 2/19/2012 

The Census Bureau will report new home sales on Friday, and the consensus is for sales of 315 thousand on a seasonally adjusted annual rate (SAAR) basis. This is up less than 2% from the 310 thousand SAAR sales reported in January 2011.

That seems a little puzzling. Consider the following …

First, look at the NAHB builder Housing Market Index. More builders still view sales as “poor” as opposed to “fair” or “good”, but the HMI – and all of the components – are up sharply from a year ago (the most recent report was for February, but compare January 2012 to January 2011):

Housing Market Index Traffic of Prospective Buyers Current Sales
Jan-11 16 12 15
Jan-12 25 21 25
Feb-12 29 22 30

This would seem to suggest more than a 1% or 2% increase in sales.

Second, look at the recent builder reports (from Tom Lawler):

Settlements Net Orders Backlog
End 2011 End 2010 End 2009 End 2011 End 2010 End 2009 End 2011 End 2010 End 2009
D.R. Horton 4,118 3,637 5,529 3,794 3,363 4,037 4,530 3,854 4,136
PulteGroup 4,303 4,405 6,200 3,084 3,044 3,748 3,924 3,984 5,931
NVR 2,391 2,639 2,550 2,158 1,765 2,000 3,676 2,916 3,531
The Ryland Group 1,040 909 1,666 915 775 969 1,514 1,187 1,732
Meritage Homes 894 837 1,202 749 713 621 915 778 1,095
Beazer Homes 882 549 961 724 553 728 1,309 800 950
MDC Holdings 950 865 1,109 523 519 637 1,043 842 826
Standard Pacific 782 619 943 615 428 547 681 414 599
M/I Homes 667 650 858 505 460 448 676 532 650
Total 16,027 15,110 21,018 13,067 11,620 13,735 18,268 15,307 19,450
YoY % Change 6.1% -28.1% 12.5% -15.4% 19.3% -21.3%

From economist Tom Lawler on February 7th:

The latest Census report on new SF sales showed a YOY increase in Q4/2011 sales of just 3%, and a YOY decline in Q4/2010 sales of 20.5%.

The nine-builder group’s order backlog at the end of 2011 was up 19.3% from the end of 2010.

As I’ve noted many times, Census’ methodology for measured new SF sales is not directly comparable to reports from builders. I’m guessing that part of the “stronger than Census” builder reports reflect gains in market share, but I’m also guessing that overall new home sales were a bit better than preliminary Census data suggested.

The combination of higher order backlogs, stronger sales, and unusually mild weather in much of the country is likely to result in single-family starts numbers in the first few months of 2012 that are significantly higher than “consensus.”

Total Housing Starts and Single Family Housing StartsClick on graph for larger image.

Sure enough. Single family housing starts were revised up sharply for December and were above 500 thousand SAAR in January. As Lawler notes, some of this was probably weather related, but some of the pick up was evident in the builder reports.

So if the builders are reporting a “stronger than Census” increase in sales (even accounting for market share gains), confidence is up (actually less pessimism), and single family starts are up sharply from a year ago, it seems surprising that new home sales were essentially unchanged in January.

Goldman Sachs is forecasting sales of 310 thousand SAAR in January 2012 (no change year-over-year), and Merrill Lynch is forecasting 315 thousand. I think I’ll take the over.

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Lawler: Early Read on January Existing Home Sales

Lawler: Early Read on January Existing Home Sales

by CalculatedRisk on 2/17/2012 

Economist Tom Lawler is forecasting that the National Association of Realtors (NAR) will report sales of 4.66 million on a seasonally adjusted annual rate (SAAR) basis for January. The NAR is scheduled to report existing home sales on Wednesday, Feb 22nd at 10 AM ET.

This is a slight increase from the 4.61 million rate in December, and essentially unchanged from the 4.64 million rate reported in January 2011.

Tom didn’t send me an estimate for inventory, but based on other reports, I expect inventory to decline slightly from the 2.38 million houses for sale reported for December.

This sales rate, combined with a decline in inventory, could put months-of-supply under 6 months for the first time since early 2006.

Note: Even though there is a seasonal pattern for inventory (inventory usually bottoms in January and peaks in the summer), the months-of-supply metric is calculated using the seasonally adjusted sales rate and the not seasonally adjusted inventory. So the months-of-supply will probably increase again over the next 6 months.

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Lawler: Short Sales increased significantly in Q4

Lawler: Short Sales increased significantly in Q4

by CalculatedRisk on 2/15/2012  

Hope Now released its December report which estimates delinquencies, foreclosure starts, completed foreclosure sales, loan modifications, and other loan “workout” plans for the US first-lien residential mortgage market. According to the report, Hope Now estimates that completed foreclosure sales totaled 842,777 last year, down about 21.2% from 2010. While Hope Now does not explicitly release estimates for short sales/DILs, it does release estimates for (1) “other workout plans,” which is the sum of repayment plans initiated, “other” (non-mod) retention plans completed, and “liquidation plans” – which are short sales and DILs; and (2) separate estimates for repayment plans and other retention plans. One can thus “solve” for Hope Now’s estimates for short sales/DILs.

Using my proprietary “subtraction” software, I was able to derive Hope Now’s estimates for short sales/DILs in 2011 – 397,280, up over 12% from 2010. HN’s short sales/DILs estimate hit an all-time monthly high of 40,533 in December, and last quarter’s estimate of 110,123 was the highest quarter on record. Other industry data suggest that DILs in both years were “diddly,” so bottom line short sales appear to have increased significantly last quarter.

Of last year’s estimated 842,777 completed foreclosure sales, 628,014 were owner-occupied properties, down about 20% from 2010, and 208,933 were non-owner-occupied properties, down about 26.4% from 2010. HN’s data do not allow one to break out short sales/DILs by occupancy.

Hope Now industry-wide estimates are based on activity of its members. Hope Now’s “derived” estimates of short sales/DILs are not available prior to 2010. Based on other industry data, however, I have my own estimates for 2008 and 2009, so here are some estimates of completed foreclosure sales and short sales/DILs for 2008, 2009, 2010, and 2011.

Completed Foreclosure Sales and Short Sales (estimates, thousands)
2007 2008 2009 2010 2011
Completed Foreclosure Sales 514 914 949 1,070 843
Short Sales/DILs N.A. 103 274 354 397
Total N.A. 1,017 1,223 1,424 1,240

CR Note: I added 2007 foreclosure numbers. It appears short sales were running at a rate of just under 500 thousand per year at the end of 2011. The shift from foreclosures to short sales is continuing (although short sale shenanigans are still rampant). Jim the Realtor noted the shift to short sales today while discussing an REO:

“This might be – this is, there is no question about it – the last REO listing I’ll ever have in Carmel Valley. They have turned off the spigot. Foreclosures are going the way of the dodo bird. It is going to be short sales from now on.”

Carmel Valley is a fairly high end area of San Diego, and the lenders might be targeting higher end areas for short sales – but Jim’s comments highlight the trend toward short sales.

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Existing Home Inventory declines 18% year-over-year in December

Existing Home Inventory declines 18% year-over-year in December

by CalculatedRisk on 12/28/2011 

Another update: I’ve been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this back in June.

According to the deptofnumbers.com for monthly inventory (54 metro areas), listed inventory is probably back to early 2005 levels. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through November (left axis) and the HousingTracker data for the 54 metro areas through December.

NAR vs. HousingTracker.net Existing Home InventoryClick on graph for larger image.

This is the first update since the NAR released their revisions for sales and inventory. Now the NAR and HousingTracker are pretty close.

There is a seasonal pattern for inventory, bottoming in December and January and peaking during the summer months. So inventory will probably decline again next month and then start increasing in February.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker.net YoY Home InventoryHousingTracker reported that the December listings – for the 54 metro areas – declined 17.6% from the same month last year. For the final week in December, inventory is down 18.4% from a year ago.

This is just inventory listed for sale, sometimes referred to as “visible inventory”. There is also a large “shadow inventory” that is currently not on the market, but is expected to be listed in the next few years. Shadow inventory could include bank owned properties (REO: Real Estate Owned), properties in the foreclosure process, other properties with delinquent mortgages (both serious delinquencies of over 90+ days, and less serious), condos that were converted to apartments (and will be converted back), investor owned rental properties, and homeowners “waiting for a better market”, and a few other categories – as long as the properties are not currently listed for sale. Some of this “shadow inventory” will be forced on the market, such as completed foreclosures, but most of these sellers will probably wait for a “better market”.

However listed inventory has clearly declined in many areas. And it is the listed months-of-supply combined with the number of distressed sales that mostly impacts prices. (note: there are still 7 months of supply because both sales and inventory have declined).

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Lawler: Completed Foreclosure Sales in 2011 to Fall Well Below 2010 Levels

Lawler: Completed Foreclosure Sales in 2011 to Fall Well Below 2010 Levels

by CalculatedRisk on 12/27/2011 

From economist Tom Lawler:

While data on the number of loans either seriously delinquent or in the foreclosure process suggested that an increase in the number of residential properties lost to foreclosure this year was a “slam dunk,” incoming data suggest that in fact the numbers will be down significantly from 2010, and will in fact probably come in at the lowest level since 2007!

Of course, there are no “official” data on completed foreclosure sales. However, estimates both from RealtyTrac through November and Hope Now through October suggest that this will in fact be the case.

Moreover, estimates from Hope Now on the number of completed foreclose sales on owner-occupied properties suggest that such foreclosures will be down very sharply this year. Unfortunately, Hope Now only started reporting the breakout by occupancy status in December 2009.

Short sales and DILs, in contrast are likely to be up in 2011 compared to 2010, at least according to estimates derived from Hope Now data. Unfortunately, Hope Now data doesn’t allow for an estimate of SS/DILs by occupancy type, and HN didn’t start releasing data that allowed one to derive estimated short sales/DILs until early 2010.

Here is a table of what completed foreclosure sales and short sales/DILs for residential first-lien mortgages might end up looking like for 2011, compared to the last 3 years.

Completed foreclosure sales are estimates from Hope Now, and the 2010 and 2011 short sales/DILs estimates are derived from Hope Now data. 2008 and 2009 short sales/DILs are my own estimates derived from Fannie, Freddie, FHA, and OCC mortgage metrics data. The data on the number of seriously delinquent loans and loans in the process of foreclosure are from LPS analytics (whose estimate might differ from Hope Now’s, if HN produced such estimates).

Completed Foreclosure Sales And Short Sales/DILs (thousands, estimates)
2008 2009 2010 2011(E)
Completed Foreclosure Sales 914 949 1,070 815
Owner-occupied N.A. N.A. 785 608
Non-owner-occupied N.A. N.A. 285 207
Short Sales/DILs 105 270 354 380
Foreclosures plus Short Sales/DILs 1,019 1,219 1,424 1,195
Outstanding first liens: Jan-08 Jan-09 Jan-10 Jan-11
Seriously Delinquent (90+) 1,016 1,983 3,061 2,168
In Process of Foreclosure 860 1,386 2,110 2,203

Given the number of loans either seriously delinquent or in the process of foreclosure at the beginning of the year, the number of completed foreclosure sales in 2011 is almost absurdly low, reflecting the complete screw-up of the mortgage servicing industry, and the resulting dramatic slowdown in foreclosure resolutions. As of the end of October, 2011 LPS estimated that there were 1.759 million seriously delinquent loans with the average number of days delinquent at 388 (compared to 192 days in January 2008), and there were 2.210 million loans in the foreclosure process that had been on average delinquent for 631 days.

While there are no data that I know of that break out the number of seriously delinquent loans or loans in the foreclosure process backed by properties that are vacant (or rented out by owners not paying on the mortgage), at least one industry consultant who has looked at some (unfortunately confidential) data told me that the % of loans in the foreclosure process that are not occupied by the owner of the property is “shockingly” large.

CR Note: It would really be helpful to have an official count of foreclosures and short sales.

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Lawler: The NAR “benchmark revision story” is not over!

Lawler: The NAR “benchmark revision story” is not over!

by CalculatedRisk on 12/21/2011 

NOTE: Large tables are here in excel.

From housing economist Tom Lawler on the NAR revisions:

Seasonally Adjusted Existing Home Sales Up 4% in November; Benchmark Revisions Reduce 2007-10 Sales by 14.3%; Regional Revisions Seem “Funny,” Suggest Issues with Past Data as Well

The National Association of Realtors estimated that US existing home sales ran at a seasonally adjusted annual rate of 4.42 million in November, a figure that reflected that NAR’s long-awaited “benchmark” downward revisions in sales for 2007 through 2010. November’s revised sales pace was up 4% on a SA basis from October’s pace, and was pretty close to my estimate incorporating revisions. The NAR also reported that its estimate of the inventory of existing homes for sale at the end of November was 2.580 million, an estimate that also reflected benchmark revisions (the NAR had previously noted that it was not revising its “months’ supply” measure, and as a result inventories would be revised down by the same % as sales). The November inventory estimate was down 5.8% from October (vs. my projection of a 5% drop); down 18.1% from a year ago; and the lowest inventory level since the spring of 2005.

November’s median existing home sales price in November was $164,200, down 3.5% from last November, while the median existing home sales price was $164,100, down 4.0% from a year ago. This YOY decline was just a tad smaller than I had projected. As previously reported, the NAR did not revise historical median sales prices (save for October 2011).

As I had expected, the NAR used data from the American Community Survey (and from the American Housing Survey) to “guesstimate” home sales, rather than using actual property records – in large part because the latter are either not available in many parts of the country, or the data quality are poor. The NAR did note, however, that “an increasing use of public records data may be appropriate in the future,” which is absolutely the case.

The NAR released revisions to annual sales, monthly seasonally adjusted sales, and monthly unadjusted sales. However, the annual revised sales reported don’t match the sum of unadjusted monthly sales, and because of rounding the sum of SF sales and condo sales does not match total sales in every year. As a result, I am going to report the “revised” sales as the sum of unadjusted sales estimates.

For the nation as a whole, existing home sales were as follows:

Revised Previous % Change
2007 5,022,000 5,652,000 -11.1%
2008 4,124,000 4,913,000 -16.1%
2009 4,334,000 5,156,000 -15.9%
2010 4,182,000 4,907,000 -14.8%

At first glance these “national” numbers don’t appear that far off from other estimates based on property records, “grossing up” the totals to reflect geographic coverage.

However, the revisions in existing home sales by broad region suggest that something “looks funny,” and/or that data prior to 2006 in some regions need to be revised as well.

See Table 2 in Excel file

Huh? Sales in the Northeast were revised down by a TON more than any other region, while sales in the West were revised down by a TON less! That seems “sorta weird,” IF the reasons for the revisions were as the NAR suggested. The modest revisions in the West were especially surprising, given that property records data in California – which are comprehensive and of good quality – suggested that the NAR’s estimate of California existing home sales in, say, 2008 was off by more than 20%!

To be sure, there was evidence of NAR sales “over-estimates” in one major Northeast state – Massachusetts – with the “overstatements” date back to at least 2000. Here, e.g., is an excerpt from the September 23, 2009 LEHC report.

Three Measures of Home Sales in Massachusetts

Below is a chart showing annual data on various measures of home sales in Massachusetts. NAR is the National Association of Realtors estimate of existing home sales (single family plus condos/coops); MAR is the Massachusetts Association of Realtors tally of homes (single family plus condo/coop) sold by member realtors; and TWG is The Warren Group’s tally of new and existing homes sold (single family and condo/coop) based on deeds recorded in the state. TWG only includes “arms-length” transactions, and does NOT include a transaction where a lender takes over a foreclosed property – but it DOES include subsequent sales of REO to third parties.

Lawler MassClick on graph for larger image.

Inquiring minds want to know (1) why is the NAR number so high? (and the answer may data back to the “benchmarking” process for 1999); (2) is it REALLY true (based on the NAR figures) that realtors only partake in 50% of Massachusetts home sales?; and (3) if sales through MLS have risen relative to total sales (as data in a number of states suggest over the last few years), have the NAR’s estimates of existing home sales been overstating actual sales? (The NAR’s estimate for total existing home sales is based on sales data from a sample of realtor associations/Boards/MLS.).

And on how to answer the home sales question on Mass … let us pray.

So … property records data had for over a decade suggested that the NAR’s estimate of existing home sales in Massachusetts, and that the NAR’s PREVIOUS benchmarking methodology, especially for condo sales, might be to blame. So maybe the sharp downward revision in Northeast sales is sorta appropriate – but the data also suggest needed downward revisions in past years as well.

And speaking of condos vs. SF, [in Table 3] are the benchmark revisions for existing SF and existing condo sales, both total and by region.

See Table 3 in excel file.

Holy smoke, condo sales in the Northeast were revised down by over 50% — FIFTY PERCENT – in each of the last four years, while condo sales in the West were revised UP a boatload!

Now if the 2007 revisions were really reasonable by region, AND if data prior to 2006 by region were “just fine,” here is what 2006 vs. 2007 sales would look like by region.

See table 4.

So … the plunge in home sales in 2007 was not only heavily concentrated in the Northeast, but condo sales in the Northeast in 2007 fell by almost 58% from 2006, while condo sales in the West JUMPED by about 33%? I don’t THINK so!

Clearly, the methodology using ACS data for owner-occupied SF sales and combined ACS and AHS data for condo sales and investor/vacant home sales, produced massively different revisions by regions and by housing type that don’t “smell” right – especially for condo sales.

Of course, this doesn’t mean they are “off” per se; the old benchmarking methodology seemed especially “iffy” for SF and condo/co-op investor/vacant home sales, as does the current methodology.

So … while the NATIONAL existing home sales estimates prior to 2007 don’t seem far off from national estimates based on grossed-up property records, the regional data seems to suggest that a time series using the “old” data prior to 2006 and the “revised” data from 2007 to 2011 has some “issues.”

What would be most useful would be for the NAR to release its revised existing home sales estimates BY STATE, so that folks could compare the NAR’s estimate for states where solid property records data exist TO the property records data for those states, as well as compare the “old” 2006 data to the “revised” 2007 data.

Clearly, the “benchmark revision story” is not over!

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