Auction.com LLC recently released its December Real Estate NowcastTM which predicts that existing home sales for the month will fall to a seasonally adjusted annual rate of between 4.79 and 5.18 million sales, with a targeted number of 4.98 million.
According to this prediction, sales will be up slightly compared to a year earlier but are essentially flat compared with November’s 4.93 million sales figure, which was lower than expected. November’s figure was released on December 22 by the National Association of Realtors (NAR).
“In a month where consensus forecasts were all too optimistic, we are reminded that the housing market is recovering in fits and starts, and there remain significant headwinds," said Auction.com Executive Vice President Rick Sharga. "Multiple factors may have contributed to November’s weaker than expected results, including a drop in inventory, declining investor activity, a sharp sales decline in the West, possibly reflecting affordability issues, and unexpectedly harsh weather conditions at the end of the month in the Midwest and Northeast.”
The number of first-time buyers is increasing, as according to the NAR they accounted for 31% of sales in November. In addition the pace of annual household formation is a strengthening, as reported by the Census this fall. These are key ingredients for normalizing demand for housing amongst owner occupiers. In addition, the labor market is strengthening leading to better conditions as we enter 2015, while ongoing initiatives to improve mortgage accessibility combined with lower mortgage rates could motivate more buyers to enter the market.
The NAR’s release on December 22 of existing home sales data for November shows the uneven market recovery as well as the volatility of month-to-month sales which make it very difficult to accurately predict results. Auction.com predicted that November home sales would reach a seasonally adjusted annual rate of 5.25 million which was in line with consensus estimates but well above NAR’s data for this month.
“The Auction.com Nowcast model has been highly accurate in predicting existing home sales over the past 10 months, and our testing has shown over 97% accuracy over a ten-year period, so it’s very rare for a number to fall outside of our confidence range like it did in November," said Auction.com Chief Economist Peter Muoio.
"This apparent anomaly required a closer look at possible outside factors that the model wasn’t able to account for, such as a slowdown in purchases late in the month due to inclement weather, or the potential for November predictions to be skewed somewhat by the unexpectedly strong momentum coming out of October. Because the Auction.com Nowcast is based on an autoregressive model, prior month momentum can sometimes play a significant role in predicting the current month’s activity.”