Which is the more relevant comparison in a business that suffers seasonal fluctuations?  Month-to-month, or year-to-year?  If month “B” shows a substantial increase in sales transactions over the preceding month “A” every single year, wouldn’t it make more sense to compare month B to the previous year’s month B?

Alas, in all the happy talk pervading the financial and economic air waves these days, some perhaps did not notice that Lawrence Yun, economist for the National Association of Realtors, is at it again.  The headline reads December Existing-Home Sales Jump.

The reality, as it turns out, is a bit different, from the press release.  December’s sales declined in comparison to December of 2009.

The spin fits the organization’s DNA, however.  When has it ever not been a great time to buy or sell a house?  Have you ever had a realtor tell you that maybe you ought to wait and see how low prices go before you buy?  Was anyone warned by their realtors in 2005/07 that housing prices had probably peaked and so it may be wise to hold off on a purchase if possible?  Of course not.  The organization, being at bottom nothing more than loose confederation of hucksters and scam artists in the residential real estate industry, spits out press releases like used-car salesmen touting the virtuous past of a steaming heap of junk they need to roll off their lot.

Let’s employ some objective rationality to rewrite the NAR’s press release for them:

December Existing-Home Sales Jump

Existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months, according to the National Association of REALTORS®.

Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 12.3 percent to a seasonally adjusted annual rate of 5.28 million in December from an upwardly revised 4.70 million in November, but remain 2.9 percent below the 5.44 million pace in December 2009.

Existing-Home Sales Flat

In December of 2010, existing-home sales declined 2.9% compared to December’s sales in 2009.   Sales were up 12.3% from the prior month, but seasonal factors make prior month comparisons worse than useless in an industry beset by seasonal variations such as is the residential real estate market.

Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

The national median existing-home price2 for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes3 rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

Lawrence Yun, NAR chief economist, said that the flat to declining sales volumes over the last few months indicate the depths to which residential real estate is oversupplied relative to demand.  He proposed a new government program to buy and bulldoze distressed properties, saying that, like assisted suicide helps rid families of burdensome relatives, bulldozing these properties would alleviate a great deal of pain and suffering for the people who pay his wages.   

With over a third of existing-home sales falling into the “distressed property” category, it is clear that a goodly portion of residential real estate is burdened with an infectious psychosis that threatens to distress the whole market. 

“The modest rise in distressed sales, which typically are discounted 10 to 15 percent relative to traditional homes, dampened the median price in December, but the flat price trend continues,” Yun explained.

Total housing inventory at the end of December fell 4.2 percent to 3.56 million existing homes available for sale, which represents an 8.1-month supply4 at the current sales pace, down from a 9.5-month supply in November.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said buyers are responding to very good affordability conditions despite tight mortgage credit. “Historically low mortgage interest rates, stable home prices, and pent-up demand are drawing home buyers into the market,” Phipps said. “Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010.”

Yun admitted that housing prices ain’t going up anytime soon.  NAR President Ron Phipps said that he’s got nothing but meaningless platitudes about some abstract entity known as a “buyer”, which he’s heard of but never actually seen, so he refrained from commenting, except to observe that recent money renters (i.e., mortgagors) have been better at paying their rent than did their subprime predecessors in the go-go boom years.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.71 percent in December from 4.30 percent in November; the rate was 4.93 percent in December 2009.

A parallel NAR practitioner survey shows first-time buyers purchased 33 percent of homes in December, up from 32 percent in November, but are below a 43 percent share in December 2009.

Investors accounted for 20 percent of transactions in December, up from 19 percent in November and 15 percent in December 2009; the balance of sales were to repeat buyers. All-cash sales were at 29 percent in December, compared with 31 percent in November, but up from 22 percent a year ago. “All-cash sales have been consistently high at about 30 percent of the market over the past six months,” Yun said.

Simple economics tells us that prices must decline for the residential real estate market to clear.  It can happen through nominal price declines, or through declining rent (interest) on money used for their purchase.  The price for renting residential mortgage money has dramatically declined, reaching all-time lows in late 2010, a good 60 basis points below the level of a year before.  But even with December 2010’s interest rates about 20 basis points below 2009, the market still won’t clear, and actual declines in nominal market prices might be in order.  Investors accounted for a fifth of all sales, an increase of 33% over 2009, proving once again that the “bigger fool” theory drives all of capitalism. 

Single-family home sales jumped 11.8 percent to a seasonally adjusted annual rate of 4.64 million in December from 4.15 million in November, but are 2.5 percent below the 4.76 million level in December 2009. The median existing single-family home price was $169,300 in December, down 0.2 percent from a year ago.

Existing condominium and co-op sales surged 16.4 percent to a seasonally adjusted annual rate of 640,000 in December from 550,000 in November, but remain 5.2 percent below the 675,000-unit pace one year ago. The median existing condo price5 was $165,000 in December, which is 7.4 percent below December 2009.

Regionally, existing-home sales in the Northeast jumped 13.0 percent to an annual pace of 870,000 in December but are 5.4 percent below December 2009. The median price in the Northeast was $237,300, which is 1.4 percent below a year ago.

Existing-home sales in the Midwest rose 11.0 percent in December to a level of 1.11 million but are 4.3 percent below a year ago. The median price in the Midwest was $139,700, up 3.3 percent from December 2009.

In the South, existing-home sales increased 10.1 percent to an annual pace of 1.97 million in December but are 2.5 percent below December 2009. The median price in the South was $148,400, unchanged from a year ago.

Existing-home sales in the West surged 16.7 percent to an annual level of 1.33 million in December but remain 1.5 percent below December 2009. The median price in the West was $204,000, down 5.6 percent from a year ago.

Seasonal variations make month-to-month comparisons irrelevant, so we’ll stick to just year-year comparisons.   Single family home sales declined 2.5% from a year earlier.  Condominium sales declined 5.2%.  The Northeast sales pace was 5.4% lower in 2010 over 2009, with a 1.4% price decline.  Sales in the Midwest were 4.3% below year-ago levels, with median prices rising 3.3%.  Sales declined in the South by 2.5%, with prices unchanged.  Sales were 1.5% lower in the West, where median prices declined 5.6% from a year earlier.

There.  Now that we’ve swept away the NAR bias, the big picture is clear:  Residential real estate is still a long way from assuming a renewed growth trajectory.

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