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Arkansas Home Sales

Even before the onset of the recent recession, residential real estate markets have been at the heart of our national economic tribulations. And having just purchased a home in the Little Rock area, I’ve recently taken a personal interest in the Arkansas housing market. So how did the Arkansas housing market fare during the recession, and is it now recovering?

Data on existing home sales in Arkansas are available from both the National Association of Realtors® (NAR) and the Arkansas Realtors® Association (ARA).

Last week (on November 10), the NAR released its quarterly report on state-level existing home sales. The report showed that the markets are improving in most areas of the country, with 45 states and the District of Columbia showing sales increases in the third quarter relative to the second quarter (seasonally adjusted). Arkansas was one of the states showing an increase, up 2.7%. This was the third consecutive increase for Arkansas home sales, following a 4.2% rise in the second quarter and a 3.6% increase in the first quarter. The magnitudes of the quarterly gains are relatively modest compared to some other states, but Arkansas was one of only 6 states to experience sales increases over all three quarters.

Although these data are indicative of the performance of the Arkansas market relative to other parts of the country, they do not necessarily represent the most accurate assessment of market conditions for the state. According to the the NAR’s own description of its methodology, the monthly survey covers only about 30-40% of all existing home sale transactions. The sample data are used to construct aggregates for the four census regions of the U.S., then the State data are derived from those totals.

Indeed, according to Ethan Nobles of the ARA, it is his understanding that the NAR survey excludes some of the important local markets in Arkansas. The ARA releases its own monthly summary of home sales, consisting of the total number of homes sold by Realtors® across the state. The data are subject to some revision as late reports come in, but they represent (as best as possible) a full accounting of the number of homes sold in the state.

The most recent report from the ARA came out earlier this week (November 16). It shows that home sales were up in September over the previous year. This was the second month in the past three that showed a year-over-year increase. The data, shown in the chart below, suggest that home sales in Arkansas have been on a recovery path throughout 2009.

Source: Arkansas Realtors® Association
Source: Arkansas Realtors® Association

However, it is also evident from the chart that there is a pronounced seasonal pattern in the data. Home sales tend to be lower during the winter months, and higher during the spring and summer. This makes it difficult to discern trends over periods less than a year in length. And in particular, it is hard to tell how much of the increase since January 2009 represents actual growth as opposed to regular seasonal movement.

With a longer data series, it would be possible to apply standard statistical techniques directly to the data. In the absense of a long time-series, however, more rudimentary techniques can suffice: The NAR’s monthly report on existing home sales provides estimates of both seasonally-adjusted and not-seasonally-adjusted estimates for the U.S. and the four census regions, over the past 12 months. The ratio of these two sets of estimates provide implicit seasonal factors, as calculated by the NAR (using a census X-11 procedure).

Applying the implicit seasonal factors for the Census South Region to the data for Arkansas from the ARA, we obtain a rough estimate of seasonally-adjusted Arkansas sales. The chart below illustrates the result of this procedure, with the data multiplied by 12 (so they present annualized measures), and averaged over quarters (to smooth out month-to-month variability).

Source: Arkansas Realtors® Association and the Institute for Economic Advancement
Source: Arkansas Realtors® Association (ARA), National Association of Realtors® (NAR), and the Institute for Economic Advancement (IEA).

It is clear from this chart that home sales in Arkansas were sliding downward before and during the first part of the recession, then dropped sharply in the fourth quarter of 2008. Since then, sales have steadily increased. This confirms the pattern observed in the NAR data suggesting that residential real estate markets in Arkansas have been consistently improving since the beginning of the year.

State Employment Report Provides Mixed Signals

September data on Arkansas employment and unemployment were released by the Bureau of Labor Statistics (BLS)  this morning.  The report provides mixed signals.

The household survey shows that the unemployment rate remained stable in September at 7.1%.  Arkansas is now 2.7 percentage points below the national unemployment rate.  The household survey also showed that the number of employed rose by more than 8400 from August to September.  The number unemployed also rose, but only by 539 jobs.

On the other hand, the payroll survey showed a large decline in the number of Arkansas jobs.   The new data show a seasonally-adjusted decline of 7700 jobs in September.  Moreover the number for August was revised down by 1600 jobs.  By this measure, the trend of stabilizing employment would seem to have collapsed.

Generally speaking, the payroll numbers are more accurate and provide more detail on labor market conditions.   However, they are also subject to significant revisions from month to month, and undergo a major benchmark revision in the spring of each year.  We may find that the September payroll employment report is a statistical fluke.  Nevertheless, we should not dismiss the numbers just yet.  The discrepency between the two surveys is an indication of the degree of uncertainty that we have regarding the employment outlook for Arkansas.

Two Measures of Employment in Arkansas
Two Measures of Employment in Arkansas

New Data on Employment in Arkansas Metro Areas

This morning, the Bureau of Labor Statistics (BLS) released its most recent data on employment and unemployment for Metropolitan Statistical Areas (MSAs). As described in a previous post, the MSA data are generally not seasonally adjusted. When it comes to comparing statistics from month to month, however, it can be important to adjust for regular seasonal patterns. The table below reports unemployment rates for Arkansas’ MSAs. It shows both the unadjusted data from BLS, as well as data that are seasonally adjusted using standard statistical techniques.

The seasonally adjusted data show that the unemployment rate remained constant from July to August in four of seven Arkansas MSAs. The unemployment rate fell slightly both in Jonesboro and in the Little Rock MSA. It rose by two-tenths of one percent in Texarkana. Unemployment rates around the state continue to be considerably higher than they were a year ago, but have remained fairly stable over the summer months.

Unemployment Rates for Arkansas MSAs
Unemployment Rates for Arkansas MSAs

The data on nonfarm payroll employment for MSAs is similarly unadjusted for seasonal patterns. After seasonal adjustment, trends over time are more easily identifiable. The set of figures below illustrates the trends for Arkansas metro areas. As with the state-level data on employment, the data are characterized by three distinct sub-periods since the onset of the recession (particularly for the two largest MSAs – Little Rock and Fayetteville): From December 2007 until about October 2008, employment growth was slow, but with no large job losses evident. The largest job losses occurred during the period from October 2008 through March 2009. Since March, employment has remained fairly stable.

In some of the MSAs, the recession had no discernible effect at all: Jonesboro experienced steady job gains throughout the recession. In Pine Bluff, the recession didn’t have much of an impact on a steady decline in jobs. In both Fort Smith and Hot Springs, employment has rebounded over the past three months. In fact, both Hot Springs and Jonesboro had more jobs in August 2009 than they did at the start of the recession in December 2007 (seasonally adjusted).

Nonfarm Payroll Employment in Arkansas MSAs
Nonfarm Payroll Employment in Arkansas MSAs

Click HERE to see a full size image of the figure above (PDF).

Three phases of recession for Arkansas MSAs
Three phases of recession for Arkansas MSAs

It’s too soon to say whether the upturn in job growth that we’re seeing in some of Arkansas metro areas reflects an incipient recovery from the recession. We will continue to monitor the data, looking for evidence of a broad-based, statewide upturn.

Seasonally Adjusted Unemployment Rates for Arkansas MSAs

Earlier this week (on Sept. 1), the U.S. Bureau of Labor Statistics (BLS) announced the release of its latest estimates of unemployment rates for metropolitan statistical areas (MSAs) around the country. The data for Arkansas MSAs showed that unemployment rates remained lower than the national average, but were well above their levels of a year earlier. The data released by the BLS also showed that unemployment rose from June to July in every metro area of the state except Fort Smith.
    
The latter observation might be misleading. While the national and state-level data are released on a seasonally adjusted basis, the BLS does not seasonally adjust the data for MSAs.  But it is important to recognize seasonal patterns. Most economic data series follow a distinct seasonal pattern. Economists call this pattern “the seasonal cycle.” Unlike the business cycle—which is irregular and often unpredictable—the seasonal cycle is recurring and predictable.
    
In the case of the unemployment rate there are some obvious reasons for a seasonal pattern: The unemployment rate tends to fall near the end of the year as temporary workers are hired to take on the extra demand of holiday shopping. It tends to rise sharply in January and then recover during the spring. When students enter the employment market in search of summer jobs, the unemployment rate rises again.  Typically, July represents the high point of the summer.
    
So when one asks the question, “Why did unemployment rise in July?” the answer might very well be: “Because it was July.” That doesn’t help explain the more pressing question, “Where do we stand in this irregular and unpredictable business cycle?”
    
Seasonally adjusted data can help to illuminate the answer to that question. Research on the development of seasonal adjustment techniques has been formidable, but the application of state-of-the-art methods is not rocket science: most statistical software packages that are designed for economic analysis include seasonal-adjustment as a standard procedure.
    
So I took it upon myself to seasonally-adjust the unemployment rate data for Arkansas’ MSAs (using data from January 1999 through July 2009). Some statistics from that exercise are reported in the table below.
 
Unemployment Rates for Arkansas MSAs
Unemployment Rates for Arkansas MSAs

The seasonally adjusted data show that the unemployment rate fell or remained stable in four MSAs, not just in Fort Smith as suggested by the not-seasonally-adjusted data.  In Fayetteville, Hot Springs, and Jonesboro, the not-seasonally-adjusted unemployment rate rose “because it was July.”  After accounting for seasonal factors, the situation doesn’t seem so bad after all.  In fact, for every metro area in Arkansas the level of the unemployment rate is lower after adjusting for seasonal patterns.  So why do the data show such high unemployment rates for Arkansas’ MSAs in July? . . .  “Because it was July.”

— Michael Pakko