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Simple raw counts of home sales are often more meaningful than the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
- Existing home sales increased 1.1 percent in May from one month prior while new home sales rose 2.9 percent. These headline figures are seasonally adjusted figures and are reported in the news. However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
- Specifically, 555,000 existing homes were sold in May while new home sales totaled 58,000. These raw counts represent a 24 percent increase for existing home sales from one month prior while new home sales rose 2 percent. What was the trend in recent years? Sales from April to May increased by 11 percent on average in the prior three years for existing homes and rose by 2 percent for new homes. So this year, existing homes outperformed compared to their recent norm. As for new home sales, they neither underperformed nor outperformed since sales increased at the same rate as their recent norm.
- Why are seasonally adjusted figures reported in the news? To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production - are seasonally adjusted to account for regular events we can anticipate that have an effect on data around the same time each year. For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity. Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends. That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month. When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
- What to expect about home sales in the upcoming months in terms of raw counts? Independent of headline seasonally adjusted figures, expect busier activity in June while sales are expected to fall in July. For example, in the past 3 years, June sales rose by 7 to 16 percent from May but July sales dropped by 2 to 12 percent from June. For the new home sales market, the raw sales activity is expected to diminish in June while sales typically drop in July as well. For example, in the past 3 years, sales in June decreased by 6 to 12 percent from May while July sales dropped by 1 percent on average from June.
