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.
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.
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.
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%.
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%.
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.
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.
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.
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.
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
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.
The final sales report of the year from the Arkansas Realtors® Association (ARA) showed that home sales in December were down 6.2% from December 2010. Total sales for the year were reported to be down slightly from the previous year (-0.6%), marking 2011 as the slowest sales year in recent history. Nevertheless, there is reason to be optimistic about residential real estate markets in Arkansas. Although 2011 sales were lower than the previous two years, they had been boosted in 2009 and 2010 by the Federal home-buyer’s tax-credit programs. As shown in the figure below, home sales exhibited unusual spikes in the final months of the first-time home buyer’s program (November 2009) and at the conclusion of the second round of home-buyer tax credits (April 2010). Sales in 2011 followed a more typical seasonal pattern, without any temporary boosts from government incentive programs.
Source: Arkansas Realtors® Association
After using standard statistical techniques to seasonally adjust the data, the extraordinary nature of the policy-induced sales spikes becomes even more apparent. More important, the seasonally-adjusted data show a trend of increasing sales over the course of 2011. Extrapolating this trend forward into 2012 suggests the emergence of a long-awaited, sustainable recovery in Arkansas residential real estate markets.
Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement
At the UALR Economic Forecast Conference in November, we anticipated that annual home sales for 2011 would be down slightly from the previous year (-0.8%), but that we would see a significant improvement in 2012 (+12.6%). Although this would represent a significant improvement, the forecast is not based on expectations of a dramatic recovery in housing market conditions; rather, it reflects the expected outcome of slow steady growth starting from a very low base. Given the typical seasonal pattern in home sales, however, it won’t be until the summer surge that we will have a clear indication of how the totals will end up in 2012.
The Arkansas Realtors® Association (ARA) announced this morning that home sales in September were up approximately 10.3 percent from a year earlier. In recent months, we’ve seen substantial year-over-year increases in home sales. In part, this is attributable to the fact that sales in the second half of 2010 were exceptionally weak. Following the expiration of the Federal home-buyer’s tax credit programs in April 2010, the housing market experienced something of a “hangover” effect with monthly sales figures dropping to record lows. Nevertheless, increases in home sales over the past three months suggest that the market is slowly improving.
In their press release, the ARA pointed out that “for the quarter (July – September), home sales increased 16 percent.” As shown in the chart below, this comparison with the previous year partly reflects the low level of home sales in 2010Q3. Yet the quarterly tracking of sales since then (after seasonal adjustment) reveals an ongoing upward trend. As we move further beyond the post-tax-credit hangover, ongong strength in housing sales is to be expected.
Source: Arkansas Realtors® Association; Seasonal adjustment by the Institute for Economic Advancement.
The Arkansas Realtors® Association reported this morning that home sales in August were up nearly 20% from the previous year, with total sales of 2,401 residential units. The strength of the year-over-year growth in home sales is partly attributable to the expiration of home-buyer’s tax credits in April 2010. A post-tax-credit hangover last year suppressed sales over the summer months — usually the peak season for home sales. As a result, the more normal seasonal pattern of home sales this year looks particularly strong compared to the summer of 2010.
Nevertheless, the August sales totals represent an improvement over previous months. Last month, we reported that July sales “were well-below the level that one would expect during the busy summer months.” The August figures are an improvement over July, indicating that the summer peak occured in August this year (as it often does). The strength of the August data are important for projecting annual sales totals: August sales typically account for nearly 10% of annual home sales in Arkansas, and the July-August total often accounts for as much as 20% of annual sales.
The chart below shows the patterns of home sales from 2007-2011, both seasonally-adjusted and not-seasonally-adjusted. The projections shown in the chart are based on an assumption that home sales in September through December will be as strong as indicated in the report for August. Given typical seasonal patterns, this implies home sales of around 2000 per month in September and October, and nearly 1700 per month in November and December (not seasonally adjusted). If this strength prevails, the sales total for the year will be about equal to last year’s total. Under this scenario, therefore, there is about a 50/50 chance that 2011 sales will show an overall improvement over the previous year.
Source: Arkansas Realtors® Association
How likely is this optimistic projected scenario? Much depends on interpreting the sales peaks associated with the home-buyers tax credits in 2009 and 2010. Total sales during these surges include three types of home-buyers:
Those who would have purchased a home anyway,
Those who purchased a home only because of the value of the tax credit, and
Those who purchased a home sooner, rather than later.
The key question pertains to the third group: How much sooner were households induced to move their home purchases because of the tax credit? Assuming that a substantial share of these home buyers advanced their purchase plans by months, rather than years, the market should be returning to more normal patterns in the latter months of 2011. The strength of the August sales report might therefore be taken as a sign that we are in this more-typical market already.
On the other hand [and there’s always another hand when it comes to economic projections], recent signs of weakness in the general economy and a deterioration of consumer confidence might undermine the pace of home sales in coming months.
The Arkansas Realtors® Association reported this morning that Arkansas home sales in July were 20% higher than a year earlier (see the full report here). Taken in isolation, this statistic suggests considerable improvement in the Arkansas real estate market. However, a broader look at home sales over the past several months shows that the July data confirm a trend of rather weak home sales during 2011.
As shown in the figure below, home sales tend to reach a seasonal peak during the summer months of June, July and August. In 2010, however, sales spiked in April due to the expiration of the Federal home-buyers’ tax credit program. Sales dropped sharply in the following months, with July 2010 showing a sales pace considerably lower than the summer months of previous years. Sales in July 2011 were clearly higher than they were last summer, but were well-below the level that one would expect during the busy summer months.
Source: Arkansas Realtors® Association
The weakness in home sales during 2011 is illustrated more clearly in the following figure, which shows seasonally adjusted sales data. After adjusting for the typical pattern of low sales during the winter months and high sales during the summer, the non-seasonal cyclical pattern is more apparent. So for in 2011, seasonally-adjusted home sales are above the post-tax-credit lull last year, but are not much higher than the during the recessionary period in 2008.
Source: Arkansas Realtors® Association; Seasonally adjusted by the Institute for Economic Advancement.
Today’s report from the ARA included cumulative sales statistics that reinforce the weakness of 2011 sales: For the year-to-date (January-July), sales in 2011 are down 7.7% from the same period in 2010. Thus far, the statistics suggest that sales for the year are likely to be lower than in any of the previous five years.
Nevertheless, there is still the possibility of a recovery in coming months. The home buyers’ tax credit programs sapped some of the strength from 2011 sales by shifting demand forward into 2010. It is likely that at least some of that demand shift is continuing to depress the pace of current sales. The more time passes, the more the lagged effects of tax credit programs will wane, revealing the true underlying condition of the Arkansas real estate market.
