Auction.com LLC, an online real estate marketplace, released its December Auction.com Real Estate Nowcast projecting that existing home sales for the month will fall between seasonally adjusted annual rates of 4.79 and 5.18 million annual sales, with a targeted number of 4.98 million. This prediction suggests that sales will be up slightly from one year ago and essentially flat compared with November’s lower-than-expected 4.93 million sales figure, which was released on Dec. 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,” Auction.com Executive Vice President Rick Sharga said. “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.”
Auction.com research points to the increase in first-time homebuyers (comprising 31 percent of sales in November, according to NAR), as well as the strengthening pace of annual household formations reported by the Census this fall, as key ingredients for normalizing demand for housing among owner-occupiers. Additionally, a strengthening labor market suggests a firmer basis for demand heading into 2015, while lower mortgage rates and ongoing initiatives to improve mortgage accessibility could motivate more prospective buyers to enter the market.
Market continues to ebb and flow
As the Dec. 22 release of NAR’s November existing home sales data proves, the uneven market recovery and volatility of month-to-month numbers make it challenging to accurately predict results. Based on October’s sales estimate from NAR, Auction.com predicted that November home sales would measure a seasonally adjusted annual rate of 5.25 million – well above NAR’s November data, but in line with consensus estimates.
“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 percent accuracy over a 10-year period, so it’s very rare for a number to fall outside of our confidence range like it did in November,” Auction.com Chief Economist Peter Muoio said. “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.”