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While the Internet offers a plethora of primary data sources that can be tapped to gain a better understanding of economics and the housing market, along with them come even more sites offering interpretations of those primary data sources. While some of these sites may seem to serve an educational purpose, and in fact be helpful in navigating the complex world of economics, be wary of any overt or hidden agenda. It is a simple fact that in our capitalist society most internet sites exist to make money for some individual or industry; be cognizant of this fact any time you are reading interpretations of primary data.
For example, in the NAR news release on September 2016 existing home sales, Lawrence Yun, the NAR chief economist is quoted as saying, “Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in. Unfortunately, there won’t be much relief from new home construction, which continues to be grossly inadequate in relation to demand.”
That inventory is too low to support demand is not data—it’s interpretation of data. I, for one, have provided a different interpretation of this data. I believe and have provided substantial, evidence-based analysis that housing demand is not strong and low inventory is not holding it back. We had more annual monthly supply inventory from 2012-2016 than any period from 1999-2005 when interest rates and sales were higher. Interest rates have been under 5 percent since early 2011 and still the demand for both new and existing homes has been light. My recommendation: absorb the data, read the various interpretations, then think it through for yourself.
After you have read the press release, those still hungry for more insight can dip into the summary statistics which are linked in the report and presented as graphs in PowerPoint. This will provide more information on market conditions broken up by buyer type, geographical region, price range and more. I particularly focus on the graph titled “Market Conditions,” which gives the breakdown of buyer type, i.e., percentage of first-time buyers, cash sales, distressed sales, etc. A healthy market will show year over year growth in first-time buyers and falling cash buyer and distressed sales. I suggest reviewing these statistics each month so you can start to recognize trends.
The U.S. Census Bureau provides another valuable repository of information on
housing economics. Their monthly surveys cover national and regional data on new home sales and median and average prices, among other metrics. The New Home Construction (housing starts) survey is released the 12th business day of the month, and the New Home Sales survey is released the 17th business day of the month. Metrics on new home sales may not seem important to the average real estate agent who may be largely focused on the sale of existing inventory, but these data provide a good economic indicator for the overall economy. New home sales provide the most economic output from the housing sector and mean more construction and sales of big ticket items like washers, dryers, stoves and refrigerators. For this report, keep an eye out on year over year sales trends and median sales price. Median sales price is important because the U.S. has been building bigger homes since 1975 even though family sizes have been falling. If the median home sales price doesn’t grow, this may be a good sign that the builders are selling smaller homes, which is really needed for growth.
http://www.census.gov/economic-indicators/#home_sales?cid=15EI08
The S&P Corelogic Case-Shiller 20 City Composite Home Price Index is the next report I would recommend regularly reviewing to gain a perspective on the national home price story. While nominal home prices (current dollar prices) tend to get all the attention, be mindful that real home prices (adjusted to inflation or deflation)are also important. Note that current nominal home prices are as high as they were during the housing bubble but once adjusting to inflation, home prices are still over double digits below the previous peak. Housing inventory is measured by the number of houses currently for sale divided by the average number of homes sold per month. When housing inventory gets over six months, this index shows less growth and eventually home prices will go negative. Once you become familiar with these reports, you can become knowledgeable about the nominal and real home prices in your specific area, a perspective that could be very beneficial to your clients.
http://us.spindices.com/indices/real-estate/sp-corelogic-case-shiller-20-city-composite-home-price-nsa-index
In addition to the reports above, I recommend looking at a few general economic
reports because the overall economic health of the country obviously affects the housing market and may be an early indicator of coming trends.
The weekly unemployment claims data from the Department of Labor (DOL) is key to understanding the economic health of the country. Falling unemployment claims are one the most bullish economic indicators we have for the U.S. When looking at employment data I advise paying attention to the four-week moving average rather than the headline numbers, as the headline numbers can be volatile and are often revised. For the current economic cycle, I have advised that if unemployment claims reach 323,000 on the four-week moving average, then we can start to suspect the economy is heading into a recession. Currently unemployment claims are around 251,000 on the four-week moving average.
https://www.dol.gov/ui/data.pdf
The other economic report I recommend reviewing when it becomes available is the monthly employment situation report from the Bureau of Labor Statistics (BLS).
http://www.bls.gov/news.release/pdf/empsit.pdf
This report provides details on changes in employment for the different job sectors, hourly wage gains and unemployment by education level; note when reviewing this data that demographics have a huge influence on employment numbers. Our country is getting older, which means more people removing themselves from work to retire or stepping down to part-time employment. Key data to monitor from this report are the monthly job numbers and average hourly wages; it is also important to note which sectors are showing positive or negative growth.
As one becomes more versed in reading economic reports you may desire a deeper dive into the data. There are many more sources available to meet this need, but for the novice, the two reports listed above are a good place to start.
If I may provide one caution to those who would like to build their reputation as reliable source of information on the housing market and economics: don’t be lazy. I have seen too many real estate agents who use the copy and paste method of supplying information without reading or carefully considering the content. Yes, this method is fast and easy; you can read a couple of articles with pre-digested information on the market and pass it along as your own thinking. The problem with this, and I have seen this happen many times, is that when you are asked for more detail or to support your claims with data, you can do no such thing, and you end up looking worse than if you had never said anything at all. The internet and social media is the “Wild, Wild West.” If you don’t know what you are talking about you will be found out, and sometimes that process can be brutal. Don’t damage your reputation instead of building one.
Instead, take small steps by learning as much as you can. As your confidence and maturity of thinking grows, start making your inroads into social media, with your perspective on what is happening in your local market.
My last word of advice would be to not be afraid or intimidated by economic charts, math or data. Even if you didn’t like or do well in math in school (I didn’t), embrace it, learn it and use it.
Social media has given people the ability to showcase their skills and knowledge to a broad audience, essentially for free. You can create your own social media presence by taking small steps to build your knowledge base and staying committed. Small steps can lead to big things and big things tend to happen over time. The world has changed so much and information is now available to you at the tips of your fingers. Take advantage of it.
Logan Mohtashami
Senior Loan Manager
AMC Lending Group and Housing Data Analyst