Is Your Economic Outlook Half Full or Half Empty?

Half full or half empty? It depends on your perspective, although an engineer friend says it’s not the volume of liquid but the size of the glass that matters.

Economics is often a half-empty, half-full endeavor. Consider April’s existing home sales numbers from the National Association of Realtors (NAR): Economists expected a 2% increase over levels of a year ago, but the real number was disappointingly lower than that.

NAR reported April existing-home sales of 4.65 million, a modest 1.3% increase over March’s unrevised 4.59 million sales. Economists expected 4.69 million sales.

And while industry watchers expressed what Metrostudy (a subsidiary of Hanley Wood, the company that publishes ProSales) chief economist Jonathan Smoke calls “misdirected hand-wringing over the alleged stall of the 2014 housing rebound,” a closer look at those sales provides a glimmer of hope.

That’s because the total volume of home sales month-to-month isn’t nearly as important as what’s being sold and who’s buying. The sign of continued market health is the increase in non-distressed transactions, meaning more consumers—not investors—are reaching for their wallets. Additionally, prices remain firm against continued demand with a limited supply of homes available on the market.

A deeper look at home sales from Metrostudy’s deed-level data across the country shows that real estate owned (REO) sales among existing home sales decreased 23.5% in April. Foreclosures dropped 35.7%.

Meanwhile, the portion of regular resale—considered non-distressed sales—grew 13%. Comparing April 2014 with April 2013, the REO share fell 19% while the foreclosure share again declined from 14% to 9%. The regular resale share rose 11.5%.

Investor activity also continues to decline, falling almost 10% in April from the first quarter. This is a good thing. “Investors drove up pricing last year, and investors don’t create the same economic impact in home improvement that regular buyers do,” Smoke says. Pricing is also a key lagging indicator reflecting improving, not deteriorating conditions, according to Smoke. NAR says that the median existing home price in April was $201,700, up 5.2% over last year.

In my conversations with dealers, you all seem pretty upbeat about the remainder of this year. At 2014’s halfway mark, it’s anybody’s guess whether housing demand limps to the finish line or takes off with a roar. Regardless, here’s hoping your glass overflows. Cheers.