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Arkansas Home Sales – October 2012

A new report from the Arkansas Realtors Association shows October home sales up 5.9% from the previous year. Home sales typically trend downward during the autumn months of the year, but the pace of the decline can differ from year to year.  As shown in the chart below, sales dropped off sharply from September to October 2011, but dropped only a little from this year’s September sales total.  Hence, today’s report showing a year-over-year increase cannot be viewed in isolation from last month’s report that showed September sales down sharply from the previous year.  Combining this month’s report with last month’s report, sales for the September-October 2012 were down 0.6% from the same period in 2011.

Source: Arkansas Realtors® Association

After removing the pronounced seasonal component of the home sales data, the trend during 2012 has been flat — with sales down just slightly from the previous year.  In fact, today’s report showed that year-to-date home sales were down 2.4% from the 2011 pace.  November and December are usually two of the slower months of the year, so it is unlikely that sales during the remainder of 2012 will have much of an impact on annual totals.  When all the data are in, we continue to expect that 2012 home sales will be down slightly from the previous year.

Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement

Arkansas Home Sales – September 2012

On Monday–just one day before the Arkansas Economic Forecast Conference–the Arkansas Realtors® Association (ARA) released home sales data for September.  Total sales for the month, 1971, differed from the projection embedded in the Arkansas forecast by only 18 homes.  Consequently, the new data required no real adjustment to the forecasts.  As shown in the two figures below, home sales have shown little growth this year compared to 2011.  For the first 9 months of the year, ARA reports that total sales are down 0.5%.

The peak summer sales season has passed, so home sales over the remainder of the year are unlikely to have any substantial impact on this year-to-year comparison.  The forecast presented on Tuesday anticipates that home sales will end the year essentially unchanged (-0.1%) from the 2011 totals.  With record-low mortgage rates, home prices starting to show some upward momentum, and employment steadily improving, some rebound in home sales is expected in 2013.  The forecast anticipates growth of 5.9%.

Source: Arkansas Realtors® Association
Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement

Arkansas Home Sales – A Sluggish Summer Season

The Arkansas Realtors® Association just released new sales figures for July and August.  July home sales were essentially unchanged from the previous year, while August sales were down 5.6% compared to August of 2011.  The sales downturn in August overstates recent weakness in the market:  As shown in the figure below, sales were particularly strong in August 2011, so the percentage change reflects relative strength last year as much as it does relative weakness this year.  Nevertheless, cumulative year-to-date sales as of August are down 2.0% from last year’s totals.

Source: Arkansas Realtors® Association

After seasonal adjustment, the sluggish sales growth of recent months is even more apparent.  On a seasonally-adjusted basis, monthly home sales have been fluctuating within a range of 1,800 to 2,100 per month for the past year or so.  Sales appeared to be slowly trending upward in the second half of 2011, but slowed somewhat in the spring and summer of this year.

Source: Arkansas Realtors® Association; Seasonal adjustment by the Institute for Economic Advancement.

Recent sales reports seem to suggest a shifting of sales activity around the state.  Some of the larger real estate markets that were rebounding strongly a year ago have been areas of slower sales this year.  For example, the central Arkansas counties of Pulaski, Saline and Faulkner were showing double-digit sales growth in mid-2011, but have slowed or contracted slightly in the latest monthly reports.  The same pattern seems to characterize Craighead County home sales.   On the other hand, the Northwest Arkansas counties of Benton and Washington are among the stronger performers in recent sales reports, compounding gains from last year.  This rebound is welcome — and not particularly surprising — in light of the fact that Northwest Arkansas markets were hit harder by the housing market collapse and subsequent recession.

The real estate reports from July and August also documented sharp increases in median sales prices.  In July, the median price was up 13.3% and in August it was up 17.3%.  These increases reflect a combination of factors.  First, they suggest that the higher-priced end of the housing market is showing more activity — this includes the impact of higher relative sales volumes in Northwest Arkansas.  The higher sales prices also reflect the general improvement in home values, as evidenced by recent home-price data from the FHFA.

With home prices appearing to have bottomed-out and with mortgage rates at historic lows, conditions appear favorable for a sharper rebound in home sales.  Factors holding back home sales include tight credit conditions and weak household balance sheets.  Improving labor market conditions should help surmount these obstacles over time.

New FHFA House Price Data – A Mixed Bag

This morning, the Federal Housing Finance Agency (FHFA) released house price data for the second quarter of 2012.  For Arkansas, the report was a mixed bag of results.  The seasonally-adjusted “Purchase-Only Index” (which uses only sales price data) showed Arkansas house prices up 1.9% for the quarter and up 7.2% from a year earlier.  In comparison, data for the U.S. showed prices up 1.8% for the quarter and up 3.0% from the previous year.  On the other hand, the FHFA’s “All-Transactions Index” (which includes appraisal data from refinancings) showed prices declining.  House prices were down 1.5% in Arkansas, and down 0.7% nationwide.

Source: Federal Housing Finance Agency
Source: Federal Housing Finance Agency

The purchase-only index has the advantage of measuring only market transactions — where true value is revealed.  The all-transactions index has broader coverage and incorporates more individual data observations.  But neither is a perfect measure.  One conclusion on which both methodologies agree:  The house-price crash that has plagued the market since 2006 has not been nearly as severe in Arkansas as in the rest of the nation.

One drawback of both measures is the limited nature of the underlying data, which are restricted to mortgages financed by Fannie Mae and Freddie Mac.  Missing in this sample are transactions for homes financed with nonconforming mortgages, including “jumbo” loans.  In an attempt to broaden coverage, the FHFA introduced a third measure last year, the “Expanded-Data” indexes, which incorporate additional data from the FHA and from county recorder offices.  The Expanded-Data indexes help to bring the FHFA measures into closer correponsdence with the famous Case-Shiller house price index.

As shown in the chart below, the expanded data indexes show larger peak-to-trough declines than either the all-transactions or purchase-only measures, but tend to validate the view that we are past the trough with prices beginning to recover.  For the second quarter, the expanded-data series show Arkansas prices up 2.4% and U.S. prices up 2.0%.  On a year-over-year basis, the Expanded-Data series show prices up 7.8% in Arkansas and up 2.4% for the U.S.

Source: Federal Housing Finance Agency

Metro Area House Price Data:
Metro area data are available only for the All-Transactions measure.  Consistent with the statewide reading for the second quarter, house prices as measured by this methodology were down across the state.  Price declines ranged from -0.4% in Little Rock and Fort Smith to -5.4% in Hot Springs.  Relative to the second quarter of 2011, however, house prices were measured as being higher in three metro areas — Fayetteville, Jonesboro and Little Rock.  The longer-run record of house prices shows considerable diversity among the states metro areas.  Compared to the second quarter of 2007, price changes range from +6.2% in Texarkana to -18.6% in Fayetteville.

Source: Federal Housing Finance Agency

Arkansas Home Sales – 2012:Q2

The Arkansas Realtors® Association gave us a two-for-one special yesterday:  home sales statistics for both May and June.  Compared to the previous year, sales of new and existing homes were up 7.3% in May and up 0.2% in June.  As shown in the figure below, sales are showing their typical seasonal increase for the two months, but the trajectory shows little apparent improvement over the weak sales totals we saw last year.  For the first six months of the year, total sales were 11,687, up 4.3% from the 2011 pace.

Source: Arkansas Realtors® Association

The slow rate of increase in home sales is illustrated even more clearly after the data are seasonally adjusted.  As shown in the figure below, monthly sales have been hovering near the 2,000 per month pace for the past several months.  Relative to that trend, however, the months of February and April were particularly weak.  After seasonal adjustment, the sales pace in June was running right at the 2000/month rate.

Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement

Month-to-month changes in home sales can be subject to short-run idiosyncratic developments, so it is helpful to look at quarterly average figures to get a better sense of trends.  With April and May running below trend, the sales total for the second quarter declined from its first-quarter pace.

Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement

Our most recent forecast for 2012 home sales was 25,000, up 7.5% from 2011.  If sales are to reach that total, we’ll have to see some improvement in the second half of the year.  Given the usual seasonal pattern of home sales, the months of July and August will be crucial.

Arkansas Home Prices – 2012:Q1

The latest data from the Federal Housing Finance Agency (FHFA) suggest a slight increase in home prices nationwide, with prices in Arkansas increasing at a rate above the national average.  Yesterday’s FHFA report emphasized the seasonally-adjusted purchase-only index which showed U.S. house prices up 0.6% from the previous quarter, and up 0.5% from the same quarter a year earlier — “the first annual increase since 2007.”  By the same measure, house prices in Arkansas were up 0.3% for the quarter and up 1.3% from a year earlier. 

Source: Federal Housing Finance Agency

The pattern of home-price changes across the nation shows a wide divergence in house price changes.  Prices continue to decline in some areas of the country that experienced particularly dramatic home price increases during the housing price bubble and subsequently have experienced large declines (e.g. Nevada, California, Illinois and Georgia).  Other states appear to be recovering (e.g. Florida, Arizona, and Michigan).  Arkansas ranks #22 among the 50 states for its rate of home-price appreciation over the past year.

Source: Federal Housing Finance Agency

The FHFA all-transactions indexes (which include home refinancing appraisals) showed considerably less price-appreciation.  For the U.S., the all-transactions index was down 1.3% for the quarter and down 1.4% compared to a year ago.  In Arkansas, this index of house prices fell slightly from the previous quarter (-0.7%) but was up 0.5% from the first quarter of 2011.

The all-transactions index is important because it is the only measure that is published for all of the nation’s metropolitan areas.  As shown in the table below, first-quarter changes in home prices for Arkansas metro areas were mixed.  Compared to the fourth quarter of 2011, prices were down in five of the state’s metro areas, but showed fairly large increases for Hot Springs, Pine Bluff and Texarkana.  Compared to a year earlier, however, prices were up in all MSAs except for Fayetteville and Memphis.  From a longer-term perpsective, these are also the only two metro areas in which prices are lower than five years ago (2007:Q1). 

Source: Federal Housing Finance Agency

Arkansas Home Sales – 2012:Q1

Yesterday’s report from the Arkansas Realtors® Association showed that March home sales were up 1.1% from a year earlier.  In the highly seasonal pattern of home sales, March is typically the beginning of a spring surge leading up to the peak summer sales months.  As shown in the chart below, that pattern is holding true this year with March sales only slightly ahead of last year’s pace.  Since the sharp downturn in sales leading up to the recession of 2008-09, last year was the first year in which the market was not supported by Federal home-buyers’ tax credits, making it the lowest sales-year in recent history.  (Sales were boosted primarily in the terminal months of the tax credit programs:  November 2009 and April 2010.)  Starting from the low base in 2011, sales are expected to show a fairly sizable improvement in 2012.

Source: Arkansas Realtors® Association

After applying statistical techniques to adjust for seasonal patterns, recent trends become more apparent.  Following a post-tax-credit “hangover” and subsequent rebound, sales have been slowly but steadily increasing during 2011 and 2012.  Monthly observations show that February and March are down slightly from the January sales pace.  However, the not-seasonally-adjusted patterns make it clear that January contributes little to the total annual sales pace.

Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement

Month-to-month changes are subject to considerable variability:  A few days difference in closing dates can result in home sales being recorded in one month or another.  Hence, it is often useful to look at quarterly totals to evaluate recent trends.  In the quarterly chart below, the steady increase in home sales even more evident.  Yesterday’s news release from the Arkansas Realtors® Association emphasized this quarterly perspective, reporting that first quarter sales were up 6% from the previous year — a summary that accurately summarizes the first-quarter sales pace.

Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement

Although sales have been steadily improving, the first quarter total was slightly lower than the most recent forecast posted on these pages.  Nevertheless, total sales for 2012 will depend far more heavily on market activity during the peak summer months.  Stay tuned.

Updated Forecasts for 2012 and 2013

At the Arkansas State University Economic Outlook Conference today, we presented revised and updated forecasts for some key economic indicators for the Arkansas economy.  At the time that the original forecasts were complied in late October 2011, data for some series were available only through the first half of the year (e.g., personal income).  Some of the statistics that were available through the third quarter have subsequently been revised (particularly employment data).  Hence, the original projections for 2012 and 2013 incorporated forecast estimates of how 2011 would turn out.  Now that we have at least preliminary data for all of 2011, it seems a propitious time to revisit the forecasts.

In general, the data have confirmed our expectations that 2011 would show a slowdown in the pace of  the economic recovery overall, but with clear signs of improvement in the final months of the year.  In some cases, our expectations for improvement in the waning months of 2011 were exceeded — in other cases our outlook was overly optimistic.  Accordingly, the forecast revisions are mixed. And the outlook — in broad strokes — continues to be one of steady but unremarkable growth as we slowly emerge from the aftermath of the 2008-09 recession.

Personal Income
Yesterday’s data-release from the Bureau of Economic Analysis showed that total Personal Income in Arkansas grew by 3.7 percent in 2011 (Q4/Q4).  This fell closely in line with our forecast of 3.6% growth for the year.  Hence revisions to the outlook are minor.  Due, in part, to lower-than-expected transfer payments in the second half of 2011, the forecast for personal income growth in 2012 has been revised down from 5.1% to 5.0%.  The forecast for 2013 is unchanged at 3.9%.

Personal Income
Sources: Bureau of Economic Analysis, Institute for Economic Advancement

Arkansas Taxable Sales Including Gasoline
Our proxy for state retail sales, Arkansas Taxable Sales Including Gasoline (ATSIG), finished 2011 with a Q4/Q4 growth rate of 5.0% — slightly higher than the 4.4% rate in the forecast.  Some of this strength is expected to continue into 2012, prompting a slight upward growth revision from 3.2% to 3.3%.  (The slowdown from 2011 reflects, in part, the expectation of slightly lower inflation rate.)  Our original forecast included a (somewhat anomalous) slowdown in growth for 2013 (2.0%).  Such a slowdown now appears less likely, and we are now forecasting 2013 growth of 3.9%.

Arkansas Taxable Sales Including Gasoline
Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement

Home Sales
Arkansas home sales had been steadily improving during 2011 (on a seasonally-adjusted basis), but after having been supported by home-buyer tax credit programs in the previous two years, 2011 was still expected to be have the lowest total annual sales volume in recent memory.  Sales in the last three months of the year were fairly strong, but were somewhat below our expectations.  Compared to the previous year, total sales volume was down slightly more than forecasted: down 2.5% from the previous year’s (revised) sales figures.  Carrying this weakness forward into the projected sales trajectory, the forecasts for 2012 and 2013 have been revised downward.  Expectations of a double-digit growth rate in 2012 have given way to a revised forecast of +7.5%.  Sales are still expected to improve by 4.3% in 2013, but end the year with a lower sales volume than previously forecasted.

Home Sales
Sources: Arkansas Realtors Association, Institute for Economic Advancement

Payroll Employment
At the UALR Arkansas Economic Forecast Conference, we predicted that downward revisions to the payroll employment data would show that the year would end with a lower level of employment than the previous year — in sharp contrast to data that was available at the time.  The actual data revision was slightly larger than anticipated, showing a Q4/Q4 employment loss of 0.4%, rather than the 0.2% that had been forecasted.  Nevertheless, relatively strong job growth did materialize in the fourth quarter of 2011, as anticipated.  Accordingly, the growth path for employment has not been revised (+1.3% in 2012 and +1.5% in 2013), but the path has been benchmarked to a slightly lower starting point.

Payroll Employment
Source: U.S. Bureau of Labor Statistics, Institute for Economic Advancement

Unemployment Rate
Unemployment rate data for 2011 were also recently revised.  The updated statistics showed that unemployment was not quite as high in mid-2011 as previously estimated.  Moreover, the rate dropped over the last three months of the year much more rapidly than expected.  Consequently, our unemployment rate forecasts have been revised downward significantly.  2011 ended with a rate of 7.9%, instead of the expected 8.2% rate.  The downward trajectory of unemployment has been adjusted downward from this lower starting point.  We now expect the unemployment rate to average 7.4% in the fourth quarter of 2012 (instead of 7.9%) and to fall to 7.0% by the fourth quarter of 2013 (instead of 7.6%).  These would be welcome developments, if realized.  The risk to this revised forecast is that new entrants and re-entrants to the labor force might put upward pressure on the unemployment rate as the labor market continues to improve.

Unemployment Rate
Sources: U.S. Bureau of Labor Statistics, Institute for Economic Advancement

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Methodological Note:  The original forecasts of November 2011 were produced using the Moody’s Economy.com Arkansas model, benchmarked to a composite of national economic forecasts.  The revised projections presented here represent adjustments to the original forecasts in light of new and revised data.   Underlying forecast assumptions and model estimates were not generally re-evaluated as a part of this exercise, but updated model forecasts for the unemployment rate and retail sales were factored into the analysis.

January Home Sales

The latest data on Arkansas home sales were released by the Arkansas Realtors® Association (ARA) today.  January is typically the slowest sales month of the year, so it is particularly difficult to interpret January sales data in the context of longer-term trends.  As shown in the figure below, home sales for the month were down slightly from 2011 (-1.1%).  However, sales in January 2011 did not fall as sharply as usual for the month.

Source: Arkansas Realtors® Association

Seasonally adjusting the data removes the recurring annual pattern from the series.  As shown below, seasonally-adjusted data for January 2012 are in line with observations from recent months.  If sales trends continue at their recent pace, 2012 home sales are expected to average just over 2000 homes per month.  As illustrated by the not-seasonally-adjusted data, however, most of the sales for the year are expected to take place in the summer months.

Source: Arkansas Realtors® Association, seasonally adjusted by the Institute for Economic Advancement

Arkansas House Prices – 2011:Q4

New data from the Federal Housing Finance Agency show Arkansas house prices rising over the second half of 2011.  The statewide average “All-Transactions Index” increased 0.3% in the fourth quarter, following a revised 0.8% gain in the third quarter.  Comparable data for the U.S. showed a similar rebound in the second half, up 0.4% in the fourth quarter following a 1.0% increase in the third quarter.  Arkansas home prices are still down 0.7% from the end of 2010, but evidence is accumulating that the trend of declining prices has abated.

Source: Federal Housing Finance Agency

Of course, house prices in different areas of the state do not move in unison.  Fourth quarter changes in the FHFA indexes were mixed among the state’s metropolitan areas.

  • In the two metropolitan areas where prices have fallen the most over the past five years — Fayetteville-Springdale-Rogers and Memphis — fourth quarter data showed slight declines, but not enough to offset the increases of the previous quarter.
  • Prices in Texarkana also fell slightly, but the longer-term trend remains distinctly positive.
  • Hot Springs has seen rather dramatic price declines since the end of the recession, but had experienced rapid price increase over the previous three years.
  • In Pine Bluff, prices were up sharply in the fourth quarter, but not enough to erase price declines registered in 2010.
  • Prices in Fort Smith have risen slightly in the second half of 2011, and appear to have stabilized since the beginning of 2010.
  • Stability has characterized house prices in Central Arkansas.  On net, prices in the Little Rock-North Little Rock-Conway metro area have changed little since 2007, when prices in other areas of the nation began to decline.
  • Home prices in Jonesboro never did experience any substantial price declines.  Beyond some temporary ups and downs, prices have continued to rise steadily.
Source: Federal Housing Finance Agency

Although Arkansas house prices appear to have stabilized toward the end of 2011, downward price pressures remain.  In particular, ongoing foreclosure activity and other sales of “distressed” properties tend to drive average prices lower.  This is more likely to be a factor in areas of the state where general economic conditions remain weak.  Nevertheless, the fact that mortgage delinquency rates and foreclosure activity are lower in Arkansas than elsewhere in the nation bodes well for the outlook.