Housing Market Still Schizophrenic

Today, we have more conflicting reports about the health of the U.S. real estate market. The National Association of Realtors reports that existing home sales increased by 7.4% in November. But the Commerce Department says (.pdf) that purchases of new homes fell by 11% in November. What should we make of these conflicting reports?

First, the NAR says:

Existing-home sales - including single-family, townhomes, condominiums and co-ops - rose 7.4 percent to a seasonally adjusted annual rate1 of 6.54 million units in November from 6.09 million in October, and are 44.1 percent higher than the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007 when they hit 6.55 million.

Total housing inventory also declined by 1.3%, according to the report. You'd have to go all the way back to April 2006 to find a lower unsold housing inventory level, which is pretty good news. The national median home price, however, was 4.3% lower than a year ago in November.

The Commerce Department reports:

Sales of new one-family houses in November 2009 were at a seasonally adjusted annual rate of 355,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.3 percent (±11.0%) below the revised October rate of 400,000 and is 9.0 percent (±15.3%)* below the November 2008 estimate of 390,000.

At this point it should be clear why these reports conflict -- they're considering different populations of houses. The NAR is talking about existing home sales, while the Commerce Department reports on new home sales. So what this really means is that Americans are buying more existing homes, but fewer new homes.

And that probably isn't surprising. In a buyer's market, you can likely get better deals on older homes than newer ones. In particular, foreclosures and distressed homeowners will provide buyers with rock-bottom deals. The NAR data confirms that 33% of November sales included distressed properties, up from 30% in October.

So what about if these two reports are combined? I went ahead and added up new and existing home sales from these two releases. If you do that, you find that there were 6.9 million total home sales in November, compared to 6.5 million total home sales in October. That produced a 6.2% increase in total home sales in November -- not quite as pessimistic as the new home sales decline implies, but not as optimistic as the existing home sales increase indicates either.

One interesting consideration might be to take distressed existing home sales out of the equation. That makes the results look even less impressive. Total non-distressed home sales increased by only 1.6% from October to November. That's still something, but it does indicate that distressed properties continue to drive the sales growth we're seeing.

Of course, NAR's chief economist says the increase in sales continues to be fueled by the homebuyers credit recently renewed and expanded by Congress. So demand continues to be pulled forward, which is good news for home sales now, but probably not forever.