Most of the data about the real estate market focuses on how sales are trending versus prior year, or the change versus the prior month.
An interesting way to assess the market is to look at how home sales have grown during the course of the year. As I've observed before, the majority of home sales take place from May to September; a measure of the relative health of the market is the pace of growth from the start of the year to the height of the home selling season. This measure shows us whether the rhythm of the market is adhering to traditional convention, or if it is lagging behind.
The chart below looks at the change in home sales, inventory and price from a year ago, and from January.
The annual pace of home sales is virtually unchanged from a year ago. However, the pace has gained 9% since January. Actual sales (rather than seasonally-adjusted figures) gained 27% since the beginning of the year.
As the number of home sales increases through the year, inventory grows to meet the demand. Market observers have been appropriately encouraged by the decline in inventory from prior year. Looking at the trend in inventory since January shows us that the market has been able to moderately work off the over-supply of homes.
These figures are interesting, but benefit from a larger context. The graphic below show the percentage growth in non-seasonally adjusted home sales from January to June over the past decade.
The average growth over the six month period is about 85%. In 2002 and 2007, growth dipped well below the norm; the rate of growth then rebounded as the market began to strengthen. In the first six months of 2009, the number of homes sold in June more than doubled from January, the most robust pace of sales growth in the past five years.
One caveat to these encouraging trends: the composition of the market is fragile. Traditional home buyers are highly constrained by plummeting home values and the weak job market; the largest volume of sales has been by value-seekers...first-time homebuyers and investors. Inside Mortgage Finance Publications issues a valuable report this month surveying real estate agents about the current compositions of transactions in their markets.
The clear conclusion was that the market was being elevated by the first-time buyers and the investors, who were each more tolerant of the risk that comes with buying foreclosed or REO properties.
According to the research, only 36% of transactions handled by the responding real estate agents were non-distressed properties. Fully 26% were damaged REO's. Only 29% of buyers were current homeowners; 43% of buyers were first-time homebuyers.
More than half of the damaged REO's were sold to Investors. More than half of the move-in ready REO's were sold to first-time homebuyers. Current homebuyers were most likely to buy non-distressed properties.
The data shows the fragile foundation of the current velocity in the resale home market. Extrapolating from the research data suggests that the annual rate of sales to current homeowners is about 1.6 million homes. I can't find any reliable, comparable data for prior years, but have to assume that current homeowners probably made up 50% to 60% of resale demand during more stable periods.
The data supports contentions that the housing recovery will be slow and lends credibility to observers who believe the bottom is still a little ways off. But it also supports a scenario where home demand explodes when the macro-economics around housing normalize.