- Previously, we looked at the FHFA and Case-Shiller release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional, state, and city or MSA level.
- Monthly FHFA releases data at the Census division level and quarterly it releases state and metro area data. Case-Shiller offers data on 20-cities monthly. Both of these sources confirm the trend seen in NAR measures.
- At the regional level: the most robust home price gains from a year ago were in the West. NAR reported price change of 15.5% in December and 14.6% in January. According to FHFA year over year prices in December 2013 rose 14.9 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 12.6 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
- Likewise, NAR data showed the smallest price gains from a year ago in the Northeast (3.5% for the year ending in December and 6.6% for the year ending in January), and FHFA showed a similar pattern. Prices rose 2.7 percent in New England (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut) and 2.1 percent in the Middle Atlantic states (New York, New Jersey, Pennsylvania) from December one year ago.
- State by state data, pictured below, shows more detail. Some states in the South had very robust growth: Florida, Georgia, and Texas, but the region as a whole had more moderate growth because of states with more modest home price growth or mild declines such as West Virginia, Arkansas, and Mississippi.
- Among cities, Case-Shiller reported the biggest year over year gains in Las Vegas, San Francisco, and Los Angeles. Each had more than 20% year over year gains. The smallest gains in Case Shiller’s cities were Cleveland at 4.5 percent and New York at 6.3 percent. While the cities covered differ, NAR saw similar trends with the largest home price gains in the 4th quarter out West in cities such as Sacramento and Las Vegas. NAR also saw substantial home price gains in Atlanta, a city that showed an 18.1 percent year over year gain by Case Shiller’s measure. In the quarterly release, FHFA produced a similar list of the top-20 metro areas. Again, the specific areas covered are different, but many of the top metro areas on FHFA’s list are out West including Modesto (CA), Stockton-Lodi (CA), and Vallejo-Fairfield (CA) as the top 3.
- According to data found in NAR’s annual Profile of Home Buyers and Sellers, home buyers and sellers consistently report they truly rely on referrals from friends and family to find an agent or they use an agent they had worked with before.
- Fifty-four percent of buyers and sixty-four percent of sellers found the agent they worked with either from a personal referral or they used an agent they had worked with before to buy and sell a home.
- Due to this fact, two-thirds of both buyers and sellers only contact one agent before choosing an agent to work with.
- Buyers are being assisted by professional real estate agents and brokers with what is often the most important transaction of their life. Their home purchase is not only the roof over their head, the garden they want to plant, but their nest egg for their future.
- The most importance skills and qualities buyers look for are honesty and integrity. The most important factors to sellers are the agent’s reputation, and that the agent is honest and trustworthy.
- Annual data in the Member Profile validates what we hear from buyers and sellers on this point.
- Forty-two percent of member business is from referrals and repeat clients – this increases as the member’s experience in the field of real estate increases, reaching sixty-four percent for those with 16 or more years of experience.
- While many buyers find the home they purchase online, very few find the agent they end up working with online.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses unemployment insurance claims.
- After a weather-related spike, initial claims for unemployment insurance for the week ending March 1 normalized to 323,000, a decrease of 26,000 from the previous week’s number. As shown in the chart below, jobless claims filed continue to trend downward. Fewer jobless claims means fewer people are being laid off.
- Although this is positive, the more important issue is whether the economy is producing net new jobs. Job growth has been modest. Yesterday’s report by ADP, a company that tracks payroll employment, showed that the economy generated slightly more jobs in February (139,000) than in January (127,000) in part boosted by new construction jobs. The official employment data for February will be released tomorrow by the U.S. Department of Labor.
Rising home values and an improved economy changed the foreclosure picture dramatically over the last two years. The decline in foreclosures and distressed sales resulted in less downward pressure on prices and more buyer confidence. To find out how your market performed, see the 4th quarter 2013 Local Market Reports.
Here are a few highlights from the reports:
- All 48 of the states in this sample experienced a decline in their foreclosure rates between the 3rd quarter of 2012 and 2013.
- The states with the largest declines were concentrated in areas hardest hit by the market decline, including Arizona and California.
- More than a third of markets bettered the U.S. average of a 25.7% drop in the foreclosure rate between the 3rd quarter of 2012 and the 3rd quarter of 2013.
Approximately 33 percent of respondents reported cash sales in January . About 13 percent of reported sales made by a first-time buyer were cash sales compared to about 50 to 70 percent for investors and international buyers. See the January REALTORS® Confidence Index Survey report for more information.
 The RCI Survey asks about the most recent sale for the month.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest mortgage applications data.
- Seasonally adjusted applications to purchase homes surged 9.4% in the week ending February 28th, reversing four weeks of significant declines. The purchase index is 19.3% lower than the same time in 2013. Purchase applications slid nearly unabated since mid-January.
- The average rate for a 30-year fixed rate mortgage as reported by the Mortgage Bankers Association eased six basis points from the prior week to 4.47%, and has eased nearly 16 basis points in the last four weeks.
- Both purchase and refinance applications indexes improved this week by 9% and 10%, respectively. This pattern would suggest that the trend was driven by financial market improvements rather than a shift in consumer tastes or weather.
- The improvement was nearly uniform between conventional and government financing which improve 9.2% and 10.1%, respectively.
- Purchase applications improved dramatically this week, the first hint of stabilization following a steady downward trend since January. Rates have eased only modestly and the improvement in applications hints at changes in the financing market. Originators were very concerned about the January 10th implementation of the qualified mortgage rule. Applications for purchase surged 11.5% in the week ending on the 10th. Demand may have been pulled forward ahead of the deadline skewing recent results or lenders may have become more comfortable with the rules and their preparations for it since January 10th. The market will gain more clarity in the weeks ahead.
The qualified mortgage (QM) rule was implemented in January of 2014. It is the first of two rules that came from the Dodd–Frank Wall Street Reform and Consumer Protection Act that will impact the housing market. This law is intended to protect consumers by strengthening underwriting standards, but some have argued that the rules will raise costs and reduce access for consumers. To gain insight on the impact of the new law, NAR Research surveyed a sample of lenders with questions about the impact of the lending on their business and how the rule could in turn impact consumers.
When asked about the extent of the QM rule’s impact, 55% of survey respondents indicated that the QM rule would affect 2.6% to 20% of their originations. However, 20% of originators surveyed indicated that the changes and heightened underwriting in general would impact nearly all of their production.
What does this change mean for REALTOR®s and consumers? Consumers should expect to have to document their income, employment and resources. If your client has a high debt-to-income ratio, the FHA as well as Fannie Mae and Freddie Mac will be more lenient than private financers. However, if your client falls into the other aspects of the non-QM space or even the rebuttable presumption portion of the QM space (e.g. high fees, subprime, interest only, etc.) your client might require help finding a specialty lender. Consider finding a few lenders who specialize in financing these special cases at affordable rates so that you can meet your client’s needs if the time comes. For the full survey, click here.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses construction spending.
- Construction activity rose modestly in January despite the terrible wintry weather conditions. The value of new construction completed was 9.3 percent above one year ago, marking the fastest 12-month gain in nearly 8 years. More construction is needed to relieve the housing inventory shortage, raise commercial real estate business opportunities, and bring good jobs into local communities.
- There appears to be a sizable pent-up labor demand for construction workers. Spending has risen by 25 percent over the past three years. Yet, construction employment of builders and general contractors has increased by only 9 percent. If employment had followed proportionately with the dollars spent on construction then there would be about 850,000 additional workers in the construction sector. So far more job creation is occurring in residential construction (up 9 percent from one year ago) than in commercial real estate construction (up 3 percent).
- Construction spending by government has been falling over the past four years. Fortunately, the cutbacks have not occurred in spending on highways and streets. After a brutal winter, additional fresh money will surely be required to upgrade America’s roads and bridges.
- It is worth recalling that America’s highways were purposely built in the 1950s as an emergency route out of major cities in case of nuclear bomb attack. The traffic jams of today means there will not be a fast getaway. However, the interstate road system does provide us with the everyday pleasures of visiting family and friends in far-away places. Even visiting a college campus where a loved one had studied can bring certain pleasant feelings. The author was immensely happy to have walked around Randolph-Macon College in Lynchburg, Virginia, where Pearl Buck did her studies before heading over to China. Her experience turned into a novel – “The Good Earth” – showing the value everyday people place on land. She won a Nobel Prize in literature for it. It’s a good tie-in to the REALTORS® preamble, which begins with “Under all is the land.”
The January REALTORS® Confidence Indexes for current conditions indicate a modest pace of expansion compared to the heated recovery in 2012 through mid-2013. The extreme winter weather was reported to have negatively affected sales, particularly on the East Coast and in the Midwest. But across many states, a major factor reported by REALTORS® that is impeding sales was the low inventory of available properties. Another problem cited was tight access to credit; there are reports that the self-employed have a tough time obtaining mortgages. See the January REALTORS® Confidence Index Survey for more information.
The index for single family sales registered at 60 (59 in December). The index for townhouses/duplexes was at 44 (43 in December) while the index for condominiums was at 40 (37 in December). The indexes are at about their levels compared to the same month last year but are lower than their peak levels in mid-2013. An index of 50 marks “moderate” conditions .
With spring around the corner, the 6-month Outlook Index is reflecting the seasonal market optimism. The index for single family homes rose to 69 (66 in December). The index for townhouses hit 50 (48 in December) while the index for condominiums registered at 46 (44 in December).
 An index of 50 delineates “moderate” conditions and indicates a balance of respondents having “weak” (index=0) and “strong” (index=100) expectations. The index is calculated as a weighted average using the share of respondents for each index as weights. The index is not adjusted for seasonality effects.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the GDP.
- The broadest measurement of nation economic health showed a slight improvement. The GDP advanced 2.4 percent in the fourth quarter of last year. Both consumers and businesses spent more. But the federal government pulled back, quite sizably, on national defense. Exports rose faster than imports, thus reducing trade deficit.
- The 2.4 percent growth is below the historical average of 3 to 3.5 percent. This measurement can also be viewed as the total income of the country (everyone’s income all combined from wages, dividends, rents, profits, etc.). So the increase generally means more job creation in the upcoming months. NAR estimates 2 to 2.5 million net new jobs in 2014.
- Somewhat technically: GDP growth was also caused by inventory accumulation at warehouses. Companies will slow the production process in order to burn off some of the inventory. GDP in the first quarter of 2014, thus, could be even slower than the latest, falling below 2 percent.
- One mystery on the ongoing sluggish economic expansion is the evident lack of business confidence. Big companies are flush with profits and are expanding slowly. Small businesses generally need to borrow to expand. Spending by all businesses therefore tends to be notably higher than corporate profits. That is not the case in recent years. Businesses are just not confident about expanding. Look at that chart below.
- The GDP figure is criticized by some economists and many social scientists as being too focused on dollar measurements. Many important human activities are not measurable in dollars and not counted. A mother’s conversations with a toddler, which has shown to be one of the best predictor of a child’s future economic success, are not and cannot be measured. People not smoking reduces consumer spending dollars and GDP, but improves the quality of air and health. There is something to be said of Counting the Stars and no more counting dollars, as a popular song would have it. Still, however imperfectly, GDP clearly shows which country is living well and which are not. One does not want to be in Venezuela today as its GDP is spiraling downward.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses unemployment insurance.
- Initial claims for unemployment insurance for the week ending February 22 spiked up to 348,000, an increase of 14,000 from the previous week’s number. Not to be alarmed – the increase appears due to be driven by the inclement winter conditions since December. Under most state programs, those currently employed who are temporarily out of work through no fault of their own can file for unemployment insurance. Construction jobs which are also mostly hourly-paid jobs were likely the most impacted. The Department of Labor will release the list of states with an increase or decrease in claims of 1,000 next week, but we expect that this weather-related cause is likely to show up in the data.
- In short, the spike does not appear to be related to any long-term employment or economic fundamental and should cause no undue alarm about the underlying health of the job market. On a year-to-date basis, the average number of claims filed is still lower than that in 2012-2013 and a number that is considered by analysts as “normal.”
- What this means for REALTORS®: Jobs are steadily if slowly growing. Under the current favorable conditions, NAR forecasts about 5.1 million sales of existing homes in 2014.
While national employment growth has been tepid in recent years relative to typical economic recoveries, some markets have done very well. Roughly a third of markets covered by NAR have outperformed the national average over this time period. You can find out how your market performed in the 4th quarter 2013 Local Market Reports.
- The U.S. experienced employment growth of 3.47% between December of 2012 and December of 2013.
- 30.2% of markets in this sample outperformed the US average, while 87.2% experienced positive employment growth.
- Of the top 10 markets, four were in Florida and two in Texas.
The Mortgage Bankers Association released its weekly applications report this morning which showed a continued decline in purchase applications. This trend reflects the weight of higher mortgage rates, weather and new regulatory changes.
- Seasonally adjusted applications to purchase homes fell 3.5% in the week of February 21st compared to the prior week. The purchase index is roughly 14.9% lower than the same time in 2013. This week’s moderation follows last week’s 6.3% slide and is the fourth consecutive decline in the total purchase index.
- The average rate for a 30-year fixed rate mortgage as reported by the Mortgage Bankers Association rose three basis points from the prior week to 4.53%, and has eased nearly 19 basis points since the beginning of the year.
- New purchase applications for conventional mortgages eased 3.8% following a decline of 7.3% in the prior week, while applications for government financing fell 3.2% following a drop of 3.9% in the prior week. Both FHA and conventional lending have slumped in recent weeks.
- Purchase applications surged in the week of January 10th ahead of the CFPB’s introduction of the new QM rule. They subsequently eased and have fallen on a seasonally adjusted basis for the past six weeks consecutively in the conventional space and the last four weeks for FHA.
- Mortgage applications have been volatile since the implementation of the new qualified mortgage rule six weeks ago. Since then mortgage rates have eased, helping to buttress the secular decline in applications. The qualified mortgage rule is likely to have an impact on lending in the near term as lenders adjust to the new rules, but all things equal consumers are still likely to resume purchases with a delay. Strong weather patterns have also had an impact, but the sharp rise in mortgage rates and prices compared to last year as well as weak job and income growth have all played an important role in the sustained decline. Reduced affordability will likely hold back applications and weigh on price growth in the near term until employment and incomes enable consumers to adjust.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.
- Cold wintry weather was no barrier for people looking for newly constructed homes. New home sales moved at the fastest pace in over 5 years in this January.
- New home sales, which are really contract signings and not closings, rose to 468,000 annualized pace in January, up 10 percent from the prior month. Sales rose in the Northeast, the South, and the West. Only the Midwest showed a decline.
- Because of some increases to housing starts last year, the inventory of new home listings has bounced off their absolute lows. Still, the raw inventory count is essentially at close to a 50-year low. Many more new homes need to be built. Additional newly built clean inventory also helps on existing home inventory since mover into new homes leave behind their homes for sale. The supply of new homes based on the current sales pace is 4.7 months – a tight market condition.
- The median price of a new home in January was $260,100. That is a 37 percent premium above the current median existing home price of $188,900. Normally, the gap between the new and existing home prices should be about 10 to 15 percent. The homebuilders are evidently constructing larger and more expensive homes recently, perhaps in response to the huge stock market wealth gains among the upper-tier households. The large price gap also suggests that any home price decline potential on existing homes is minimal.
- Visualize your future newly constructed dream home. There are many TV shows catering to this inner human desire to live well. It could be this anticipation that forces us to wake up every day to work extra hard and save money. Some research has shown anticipation can be more emotionally satisfying than actual realization. Planning for a vacation is said to be more fun than being on the vacation. People are often happier on Fridays (a work day) than on Sundays (a non-work day) because of the anticipation of the next days. Therefore, dream big of your retirement home and be happy working towards that goal.
- Last week NAR released a summary of existing home sales data showing that existing home sales will start the 2014 year off with the slowest pace in 18 months. January showed a decrease in sales of 5.1% from last month as well as from a year ago.
- The national median existing-home price for all housing types was $188,900 in January, up 10.7% percent from January 2013.
- All regions showed growth in prices, but the West had the biggest gain at 14.6% from one year ago. The Northeast had the smallest price again at 6.6% from a year ago.
- January’s inventory figures increased by 7.3% from a year ago and it will take 4.9 months to move the current level of inventory. Housing starts will need to bounce back to help strengthen inventory levels.
- With sales down this month, that makes five of the last six months with decreased sales. With prices continuing to increase, the condo market appears to be thriving more than single family homes. There will be a lot of attention directed to changes in mortgage rules going forward to see if there is a change in loan applications. See the full NAR Existing Home Sales press release here and data tables here.
- Find a full graphical summary of the data here.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses consumer confidence.
- Consumer confidence dipped mildly in February – from 79.4 to 78.1. But a decline at this phase of economic recovery is not heartening news. Moreover, the latest reading is well below the 100 mark that is the historical average. Consumers just cannot figure out whether to be happier or not.
- Because of job creations in the economy, consumers are indeed saying it is better in the present. However, their expectations about the future remain shaky, with a measurable decline in the latest month (76 now compared to 81 last month).
- A recent separate survey of homeownership showed consumers saying a better condition to buy. Two-third of consumers (67%) said it is a good time to buy a house, compared to 64% in the prior month. But home sales activity has come down lately, implying the desire to buy is not matching up with the financial capacity to buy. Or perhaps the excessive underwriting stringency due to new federal mortgage rules is hindering consumers’ ability to buy.
- Consumer confidence can play a huge role in the economy and to the housing market. It is also the cheapest form of any economic stimulus as it does not cost any tax revenue provided it can be uplifted in other ways. Even a presidential election can be pre-determined by how the campaign exudes confidence. Herbert Hoover’s campaign song was associated with the then popular “Brother, Can You Spare a Dime?” By contrast, Franklin Delano Roosevelt’s song was “Happy Days are Here Again.” FDR also promised to repeal the Prohibition which won out over the women’s temperance group campaign of “Lips That Touch Wine … Shall Never Touch Mine.”
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the FHFA and Case-Shiller home price measures.
- Last week NAR released existing home sales and median home price information that showed gains of 10.4 percent in prices in January 2014 compared to January 2013, a slight acceleration from the 9.7 percent year over year gains in December but notably slower than trends in early summer/fall 2013.
- Today, both the FHFA and S&P/Case-Shiller released their housing price index data. Both data series showed continued gains in home prices with some deceleration suggesting that the pace of home price increase should fall back into a more normal range in the next few months.
- Case-Shiller reported gains of 13.6 and 13.4 percent for the 10- and 20-city indexes in the year ending December 2013 and a gain of 11.3 percent for their national price index, while FHFA reported home price gains of 7.7 percent.
- NAR reports the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price had risen by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
- The reason Case-Shiller’s reported price growth exceeds NAR’s is likely a result of the data lag. Case Shiller uses public records data which has a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported December prices include information from repeat transactions closed in October, November, and December. For this reason, the changes in the NAR median price tend to lead Case Shiller.
- FHFA sources data primarily from Fannie and Freddie mortgages, transactions using prime conventional financing, and misses out on cash transactions as well as jumbo, subprime, and government backed transactions such as those using VA or FHA financing.
For the second consecutive month foot traffic as measured by NAR’s Research diffusion index for foot traffic fell sharply. While bad weather may have played a role in this trend, the effect is widespread and significant. This movement suggests that the year-over-year decline in existing home sales, which was just 0.6% in December, is likely to soften further in January and February ahead of the spring market. A slowdown in demand would help to buttress inventories which are at 5-year lows, moderating price growth.
Every month SentriLock, LLC. provides NAR Research with data on the number of properties shown by a REALTOR®. Lockboxes made by SentriLock, LLC. are used in roughly a third of home showings across the nation. Foot traffic has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future. For the month of January, the diffusion index for foot traffic fell 10.1 points to 17.6 after declining 21.1 points in December.
The index is well below the “50” mark which indicates that more than half of the roughly 200 markets in this panel had weaker foot traffic in January of 2014 than the same month a year earlier. This reading does not suggest how much of a decrease in traffic there was, just that the majority of markets experienced less foot traffic in January of 2014 than 12 months earlier.
This trend is significant, but relatively new. Higher mortgage rates combined with two years of steady price growth have weigh on affordability. Affordability is still strong by historical standards, but bidding wars, tight credit and lingering sequester-related job uncertainties have weighed on consumers. A rise in inventories would help to normalize the market, but given that sound underwriting is in place with the new qualified mortgage rule, a loosening of credit overlays would also benefit the spring market.
Taking a closer look at Existing Home Sales price data reveals an interesting trend going on in the market…
- As shown in the chart below, while sales in the lower home-price tiers are falling, sales at the upper end are rising, quite swiftly at the highest end.
- One impact of the fact that home sales are rising at the high end but falling at the low end is that the mix of homes may be changing. In addition to fewer distressed properties, homes selling now may have more bedrooms, square footage, and other valuable amenities than homes that were sold last year.
- This shift in the mix of homes selling has the effect of pushing up the price of the median home sold, which is simply the price of the home where 50 percent of all homes sold were priced above and 50 percent were priced below that sales price.
- In spite of this drawback in the median home sales price, it has advantages of being able to be produced quickly and being a remarkably good leading indicator for other price measures that are less susceptible to the mix of homes issue.
by NAR Research economists Danielle Hale and Hua Zhong
Home sales vary in (mostly) predictable patterns based on the month of the year and the days of the week in each month. Find out what data is the best estimate of real trends and not noise in the housing market in this article.
With the January Existing Home Sales data release, NAR Research released revised seasonal adjusted annual rate (SAAR) data for the last 3 years because we re-estimate and forecast new seasonal adjustment factors. Seasonal adjustment factors are used to try to extract a meaningful trend from the noisy home sales data that has mostly predictable big seasonal moves.
Imagine the headlines: “Home sales plummet 20 to 30 percent in January from December!” followed by “A recovery of 20 to 40 percent in home sales from February to March!” Those would have been the stories every year for the last decade if home sales data were not seasonally adjusted. But how helpful would that information have been for figuring out what was going on in the housing market?
In this article, we present answers to commonly asked questions (particularly from Wall Street analysts and journalists) on seasonality in housing data and a brief discussion of why seasonal factors don’t line up from year to year.
What is affected by the seasonal adjustment revision?
Only the monthly SAAR data change as a result of this revision. The monthly unadjusted data does not change and since the annual data is the sum of the monthly unadjusted data, that is also unaffected. Thus, the total sales for the year will not change but we may realize that June sales were a little worse than we thought before while November sales were a little better.
Why seasonally adjust the data?
In short, we seasonally adjust because the housing market has a fairly predictable pattern of many sales in the spring/summer and fewer sales in the fall/winter. See this commentary for a fuller discussion or click here to see several other articles discussing seasonality in home sales.
Why aren’t seasonal factors the same for each month every year?
Like many organizations, NAR employs a model for seasonal adjustment developed by the Census Bureau called X-12. Using this model, in addition to month to month seasonal effects discussed above, economists can estimate and adjust for trading day (weekend vs weekday or day of week effects) and holidays. To see why such an adjustment might be helpful in smoothing the data, let’s take a look at some closing data from January 2014 from a handful of MLSs that are part of the EHS program.
As shown in the chart above, there are 6 major spikes for closings clustered at: the middle of the month, the end of the month, and on Fridays. There are also considerably fewer closed sales on Saturdays and Sundays—less than 4 percent of the whole month’s closings even though they were more than a quarter of the days in the month. Without evaluating the reasons for those spikes (paychecks, moving and working schedules, amortization, etc.) we know that this pattern holds and the seasonal adjustment process adjusts for it in addition to the month-to-month seasonal trend.
How much of a difference could it make? While the days of the week don’t vary much year to year and month to month (all months have either 4 or 5 of each weekday per month) the total work days in a month can vary from 20 to 23 depending on the month, and holidays can eat even further into that variation. For an extreme example, February 2017, which begins on a Wednesday, has 20 working days one of which, Monday, February 20, 2017 is the Federal Holiday for Washington’s Birthday aka President’s Day. The following month, March 2017, which also begins on a Wednesday, has 23 working days, none of which is a Federal Holiday (perhaps to the dismay of the Irish). Given that the majority of transactions fall on weekdays, having 3 or 4 fewer of them in February vs. March can have a dramatic effect on the number of closings that happen.
Sometimes these day-of-week variations line up in funny ways year to year. For example, November 2013 had 21 working days (not counting holidays) 5 of which were Fridays. By comparison, November 2014 will have only 20 working days and only 4 Fridays. This affects the seasonal adjustment factor for November 2013 vs November 2014, by as much as 4 to 6 percent depending on the region.
So what’s the major take away?
Home sales vary in (mostly) predictable patterns based on the month of the year and the days of the week in each month. NAR releases seasonally adjusted home sales data because this is the best estimate of real trends and not noise in the housing market. This doesn’t mean that the data is completely free of noise, but the SAAR is the best picture of national and regional trends in the housing market.