The Arkansas Realtors® Association released new information on August home sales this morning. For the month, the data show total sales of 1897 units, down 14.7 percent from August of 2009. However, year-over-year comparisons are not necessarily the most informative guage to use under the current circumstances. A year ago, the first-time home-buyers’ tax credit was helping to boost sales, while the expiration of tax credits in April of this year has contributed to a slump in home sales during the summer of 2010. As shown in Figure 1, home sales usually follow a distinct seasonal pattern, with the highest sales during the summer months (May through August). This year, the rush to take advantage of tax credits pushed the peak to earlier in the year.Figure 1:
Typically, the peak sales month is July, but August sales also tend to be relatively high. On average over the past three years, August sales have been approximately 4 percent lower than July. In 2010, sales in August were 7.8 percent higher than the previous month. This uncharacteristic pattern suggests that the post-tax-credit hangover hit hardest in July and the market is starting to recover. Reinforcing this conclusion, Figure 2 shows data that have been seasonally adjusted.* The seasonal adjustment procedure smooths out the predictable seasonal fluctuations, leaving only idiosyncratic month-to-month volatility and broad cyclical patterns.Figure 2:
In the adjusted data, it is clear that sales improved steadily over the course of 2009 (presumably with support from the original first-time home buyers’ credit). After the expiration of the original tax credit program, sales slowed over the winter months before being boosted by the extended and expanded tax-credit program in the first part of 2010. Both Figure 1 and Figure 2 show that the August sales number represents a slight rebound from the July slump.
Data on the average sales price of Arkansas homes, displayed in Figure 3, show that the slowdown in sales has been accompanied by a rather sharp increase in prices. The average sales price for August was $152,466, up by over 12 percent compared to February 2010. It is very unlikely that this increase represents a rise in the general value of Arkansas houses. Rather, the increase in prices represents a changing mix of homes that are being sold. The home-buyer tax credits tended to favor buyers in the low- to mid-price range. Now that they have expired, a larger proportion of total sales are higher-priced homes. The increase in average sales prices is also supported by a seasonal pattern in which higher-priced homes tend to experience relatively higher sales volume over the summer months.Figure 3:
The headline of the press release from the Arkansas Realtors® Association emphasized that year-to-date home sales in 2010 were approximately equal to the same period in 2009. Given the recent distortions in the market due to the implementation and expiration of home-buyer tax-credits, this is probably the most reasonable intertemporal comparison to make. In order for annual home sales in 2010 to exceed those of 2009, however, we will have to see further sales recovery in the remaining months of the year.
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*Seasonally adjusted data are computed by applying the Census X12 ARIMA procedure to monthly data for January 2007 through August 2010.