Wednesday, February 23, 2011

A Better Alternative to NARs Existing Home Sales Data

There has been a lot of scuttlebutt recently about the veracity of the National Association of Realtors (NAR) existing home sales data and while the NAR has promised to review its procedures and release revised numbers later this year, this might be as good a time as any to cut over to a new and better quality measure of home sales.

As I have been suggesting for almost two years now, the S&P/Case-Shiller Sale Pair Counts can be used as a high quality “organic” existing home sales index and an excellent alternative to the NARs volatile (and apparently incorrect) existing home sales numbers.

Given that the S&P/Case-Shiller methodology in constructing their home price indices seeks to constrain the source data down to organic “arms-length” transactions, vetting out “flips”, new construction and even most distressed sales, the sale pair counts associated to each price index (S&P publishes the price index and the associated counts of sale pairs used to construct each price index) capture a unique picture of existing family home sales and one that is more compatible with the trends seen for new home sales and clearly less fraught with the distortions apparently present in the NAR data.

The only slight down side of using the sale pair counts is that S&P does NOT seasonally adjust this data so their published data shows very strong seasonal movement which can make analysis difficult.

But never fear reader … I have taken it upon myself to download the Census Bureau’s X12 ARIMA seasonal adjustment software application and created seasonally adjusted series for both the Composite-10 and Composite-20 sale pair counts… I will adjust all other sale pair indices including the condo sale pair counts later the week and post the results.

Looking at the latest data, the seasonally adjusted Composite-10 sale pair count is indicating that sales are near all time lows while increasing 0.78% between November and December 2010 but remaining 27.56% below the level seen in December 2009.

Looking at the chart (click for full-screen dynamic version) it’s clear that while the worst of the home sales slide is likely behind us, the market is far from healed and likely still some way off of defining a bottom.