Economist's Commentary: July 23, 2008

Home Sales by Season

By Lawrence Yun, Chief Economist

Many Realtors® have questioned me on the stability of existing home sales over the past nine months. Existing home sales as reported by NAR have been right near the 5 million mark since September of last year. But in reality, every Realtor® will say that home sales, business activity, and commission income have not been stable over these months. What's going on?

All economic data - such as the GDP, durable goods orders, employment - are reported on a seasonally adjusted annualized basis. The reasoning is simple. Economists and policy makers need to assess trend that is not influenced by normal seasonal fluctuations. For example, if total jobs in Myrtle Beach were to decline by a third from August to September, this may not be a great concern. In fact, it could be perfectly normal for jobs to fall by that much in a beach resort town as we move from summer vacation to back-to-school. Another easy to comprehend example is gasoline prices right over the holiday weekend as many will head for the nation's highways. Therefore, the short-term run-up in gas prices is normal and should not be viewed as inflationary. The job declines in Myrtle Beach or higher gasoline prices do not imply a fundamental shift in the direction of the economy. These trends are 'normal' and, hence, the data are seasonally adjusted to show no real change.

Likewise, home sales data are seasonally adjusted to account for the usual monthly changes. Any changes that can be ascribed to seasonal reasons get reflected in changes to NAR released figures.

In addition to seasonal adjustment, economic data are annualized. That is, if the sales pace was to continue at the same pace for the next 12 months, what would be the annual tally? This is done to help quickly compare monthly data with annual data. For example, the GDP in recent quarters has been about $14 trillion. This does not mean we produced $14 trillion worth of goods and services in that quarter. Rather, it says what we would have produced over a year if the latest production pace was to continue for a year.

The following table shows the existing home sales figures in raw form as well as sales on a seasonally adjusted annualized rate basis.

As can be seen on the table, the raw sales or what Realtor® members actually see in terms of business activity and commission income varies from month-to-month. January and February are particularly difficult months in terms of getting commission checks.

The following table shows how raw sales have averaged on percentage terms each month over the past 40 years. In other words, a typical Realtor® can expect to receive nearly 40 percent of their annual income in four summer vacation months from May to August and only 27 percent over the winter months of November to February. Realtors® should research seasonal patterns using their local MLS data and plan their budget accordingly.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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