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What Do the Pending Home Sale Numbers Mean?
The report released today by the National Association of Realtors (NAR) on pending home sales shows that housing is down:
Associated Press notes
that the housing market may be headed for a "double-dip" downturn over
the winter, and that the report "adds to worries industry is mostly
propped up by government stimulus".
Remember that pending home sales figures are based on contracts which have been written, but have not yet closed. As NAR notes:
The Pending Home Sales Index [is] a forward-looking indicator based on contracts signed ...
NAR explains:
- Our
sample shows that over 80% of all pending home sales go to settlement
within a 2-month time-period (and a significant share of the rest close
in month 3 and month 4).
- Not all pending home sales go
to closing. A certain percentage of properties that go under contract
are cancelled (or fallout) before ever going to settlement.
Given
that the big banks have substantially tightened up on lending, it might be
that less than 80% of the low number of current pending home sales actually close.
No wonder the New York Times wrote yesterday, even before the new pending home sales report was released:
When it comes, a lasting recovery will be evident in a housing rebound. Unfortunately, housing appears to be weakening anew ...
We
wish we could proclaim a Happy New Year in housing. But until more is
done to help struggling homeowners, the portents are not good.
Remember that pending home sales figures are based on contracts which have been written, but have not yet closed.
The above is a constant.
NAR explains:
Here, it gets a little fuzzy. It used to be that a small total number of short sales and the inherent additional time they spend in pending status wouldn't skew the overall total average time on market of pending sales. Now there are some market areas where virtually every (non-REO) sale is a short sale. Some short sales are taking well over 6 months to close from the date of mutual acceptance between buyer & seller. If a much larger percentage of pending sales are short sales, what does that do to the average length any given listing is in pending status? As more are added and stay pending longer, pending sales continue to look <sarcasm on> better & better.<sarcasm off> I call BS on an increase in pending sales being a forward indicator of more closed sales. It's just that they're taking much longer to close. It's almost as bad as a freakin' hedonic adjustment! The argument would only be valid if these were taking a similar time frame as prior periods that the statistics reference. Lots of these are also falling through before closing for many different reasons, including tightening of lending standards as noted.
Couple that with the fact that the short sale departments aren't the glamorous departments that bring in the big bucks, and you can figure that the people in those departments probably aren't the best & the brightest in the company. They're handling many files simultaneously, and there's no million dollar bonus for getting a short sale closed for them. Remember, a short sale is when the lender agrees to release their secured interest in the property for less than they are owed. They may, in some states, convert the secured interest into an unsecured loan that the home seller agrees to pay back, or they may just forgive it & write off the loss. Now, imagine if there are two lenders on a property, the senior position mortgage and the second mortgage/HELOC. Now, you need to get two separate parties to agree to accept less and to agree on who gets which share of what's left.
Given that the big banks have substantially tightened up on lending, it might be that less than 80% of the low number of current pending home sales actually close.
Aside from the issue of borrowers actually having to be credit-worthy, if a seller is underwater on their mortgage and may potentially be losing their home to foreclosure, what are the odds that they've been keeping up on the preventative maintenance? Even after a home goes pending, it still has to face an appraisal for the new loan. If something in the house needs repair for the new buyer's financing to go through, the seller isn't going to pay for it, and the existing lender won't be really excited about shelling out money on top of their loss they're about to eat. So, even after several months, a lot of the pending sales will be cancelled or failed sales.
An awful lot of pending short sales fall through and go to foreclosure. With things as they are right now, most will revert to the lenders. Those are going to be REO listings down the road. The time in between is the looming shadow inventory time. Another topic, already discussed in other threads...
Pending sales are often predicated on the buyer selling their own property. The buyer's buyer will have a similar clause in their contract, and so on. In the current market that amounts to gridlock.
Anyway the NAR is a cheerleading squad whose purpose is to boost public confidence hopefully generating realtor business. There is no reason to even read their announcements.
The final nail in the coffin to the real estate market will be raising rates. This would ensure collapse and cause a devastating domino effect. Rates are at all time lows and look at the anemic number. This could be catalyst to a depression. Again, the fed will do whatever it can to keep LT rates low but so far it has not helped much except to seemingly delay the inevitable and at what cost? Anyones guess at this point.
Long Term Rates = Black Swan time. That's my hunch.
Due to HAMP a tidal wave of foreclosures are coming this April so it would be smart to wait for that extra supply if you wanted to buy a house. Of course rates are rising..
It is the Fed that feeds the oligarchy rather than the citizenry. Abolish the Fed and the market will right itself.
It is the Fed.
All the money spent so far, could have paid off all mortgage debt and personal debt for all Americans. Total US mortgage debt is 11 trillion. Money to banks with no noticable change in the economic downturn, 23 trillion.
Look, the credit game isn't working, they're going to have to give money away if they want to generate inflation.
It's not going to happen by lending.
The sooner people and in particular the NYT and its
ilk realize the economy will never return to
its previous levels (as if returning to that is a good thing), the sooner
we can start developing a more realistic expectation
of what this countries economic structure will look like.
Until then there will be mountains of happy talk and
more useless attempts to prop up a failed system.
It is wrong to assume that there was a nefarious plan behind the credit crash or its coming sequel. In fact, the crash was caused by massive stupidity, greed, fear of allowing any bubble ever to deflate, the erroneous models and theories that dominate academic economics, and bad, short-sighted risk management practices. The bailouts of financial institutions, on the other hand, are a nefarious plot, but not a particularly clever or subtle one.
So, you're saying that these MIT-educated, Princeton scholars are a bunch of dumbasses?
Okay. I'm with ya.
Smart or dumb, educated or not, pessimists are always scarce when there is easy money to be made. When any market is going up, up, up, you won't hear anyone stop and say "this is too easy to go on forever." Dumbasses will just believe it can; scholars will prove it mathematically.
SRS or is that rigged too?
All demand was pulled in 09.
The Government has Nationalized all Real Estate. It's in the Government's interest to keep prices elevated. Why? So they can keep raisig real estate taxes to cover there bloated payrolls. Why do think thet are so desperate to come up with a plan to keep people in there homes. Not because they love them, but to keep the real estate taxes coming in. And that my friends is the only thing Government cares about. The rest is noise.
Not to mention all the derivatives they have swallowed (at the tax payers expense) that are valued against housing prices. Extend and pretend.
I have been watching a specific short sale that I put a bid in March of 09 and had been there for a couple of months. Still listed as a short sale, but the price rose 30k since then. I have been watching this with more than a couple short sales. They fall off the MLS and come back still there.
Short sale--> 2 mortgages. GL buying...
As in rigged=this just in the -wind chill is -15 so use sun screen today while inside -how rigged.
Value of construction put in place--2009-seasonally adjusted
http://www.census.gov/const/C30/totsahist.pdf
Value of construction put in place--2009-not seasonly adjusted
http://www.census.gov/const/C30/privhist.pdf
If someone has the skills to make graph overlay please do.
For those with a lot of time or just alcoholic over numbers-not to exclude ZH.
:)
http://www.census.gov/const/C30/oldtc.html
A lot of sales currently listed as pending are short sales that are not going to close until the house is taken into foreclosure maybe sometime next year. Same for many listings that have asking prices below the mortgage amount. Appraisers are taking foreclosures into account and are also busting many pending sales. If Fan/Fred start writing down mortgages on a wholesale basis next year, any momentum for price increases will be further impeded, not to mention the potential political backlash.
I hear similar stories about appraisers deep sixing a lot of pending sales.
When sales were popping and banks were lending, the appraisal pool found lots of sell-side relationship jobs because they were optimists.
Now it's the other way around. Lenders are loath to catch falling knives. A cynical appraisal gets them off the hook cleanly. Agent-recommended appraisers are verboten in the New Normal residential market. Lenders select from their own list.
and the band played on.....
Please read comment from National Bank of Canada economists, the best in Canada and among the top in the industry, IMHO:
http://mediaserver.fxstreet.com/Reports/ed8a3152-32ff-489d-a242-d4314de6225e/f9fd00ee-d581-46b1-b05c-507cc2429e7f.pdf
I quote:
The pending home sales index (PHSI) – a leading indicator of home resale activity – plunged 16% in November. This decline, the largest on record, was most likely due to the expected expiration of the first-time buyer tax credit on November 30, 2009. Recall that this program has since been extended to cover home-purchase contracts signed by April 30, 2010. Under these circumstances, we would expect resale activity to be supported through most of H1 2010. Having said this, the November outcome is bound to increase the anxiety of those that fear that the economy is still too feeble to function without government support. We do not deny that the economic recovery is still in its infancy and as such, still vulnerable to shocks. This being said, it is worth keeping in mind that the PHSI, despite the November decline, remains 20% above its cyclical low. Also, and as today’s Hot Chart shows, home affordability remains at a generation high even without the tax credit. To the extent that labour markets begin to firm and that the Federal Reserve is successful in keeping mortgage rates low, we would not fear a long-lasting relapse in housing resale activity after April 30.
My comment: Focus on jobs report due out Friday and forget pending home sales.They will recover when the labor market starts growing again.
Leo,
What happens after April as mortgages reset over the next two years?
http://www.calculatedriskblog.com/2007/10/imf-mortgage-reset-chart.html
Leo,
I agree that jobs are the most important thing.
Unfortunately:
http://www.washingtonsblog.com/2009/12/has-america-suffered-permanent-lo...
http://www.georgewashington2.blogspot.com/2007/08/unemployment.html
Leo,
I agree that jobs are the most important thing.
Unfortunately:
http://www.washingtonsblog.com/2009/12/has-america-suffered-permanent-lo...
http://www.georgewashington2.blogspot.com/2007/08/unemployment.html
Yeah great, everybody glued to the 17 inch.
In the meantime, ALL statistics are rigged and commenting on it is a waste of time.
Your comments, I mean everyone's comments, are based on the premise that you can believe statistics, government numbers and the juridical system.
With rigged gold and stock prices, commenting on, staring at your screen is a waste of time.
The financial cartel has a firm grip on everything and will not let go.
If you believe the courts will help you, think again.
You comment brings nothing to the table save for insulting all the posters here. I agree that most, if not all, numbers are skewed or rigged yet what else can we go on? Are you going to go to every bank in November and personally audit their contracts? Then STFU.
What we do see when we walk outside is a struggling population. We all know the housing market has been in a bubble for over a decade now, and we all know personal income hasn't rose at nearly a fraction of that of housing. Add to that unemployment and it doesn't take an idiot to see what's going on.
Housing will correct downwards. It has to, unless the government likes footing $10k of the bill for every new home purchase from now on.
Perhaps so, but the hungry, homeless, and plundered proletariat isn't going to like it.
Gosh, you don't suppose this has anything to do with the expiry date of the $8000 tax credit, do you? I know it was extended, but November pendings would reflect the mad scramble to get sales closed by 11/30, before it was extended.
And I don't suppose the tax credit boosted average sales prices by, say, $8000 or so, do you? I sold and bought a house in that time frame (didn't qualify for anything, by the way) but I saw offers from prospective first-time buyers that were clearly only made at all--and priced as they were--because of the tax credit.
Turn off the spigot, and what happens to housing at the starter-home level? Look at the chart. The September and October numbers weren't real; it was demand for October, November, December, January, etc.; all crammed into September/October.
June '09 looks like a real (not artificial, pulled-forward-demand) number, maybe.
Median U.S. home price in Oct 2009 was $209,400...in Nov 2009, it was $217,400.
http://www.census.gov/const/uspricemon.pdf
If they can loan the banks money at ZERO percent, then why can't they give consumers with great credit 3% home loans!??
Put a solid foundation of homeowners in place who arent going to re-default in 3 months and get rid of lots of inventory--
You know they are already giving 2% loans to absolute deadbeat subprime homeowners to try to keep them tethered to that house!
Are you blind? The plan is to eliminate good homeowners, not reward them!
Lie, cheat and steal from the Treasury, all to protect precisely those that are causing the itch.
A minor victory for the proletariat today near Vail, Colorado, where voters slowed the misappropriation of tens of millions of Dallas Texas Police and Fire Fighter pension funds:
EAGLE, COLORADO — Eagle residents narrowly voted down the controversial Eagle River Station project Tuesday. The final results were 1,175 voting against the project and 1,019 in favor of the plan. Results for the Eagle River Station election were released after 4 a.m. Wednesday morning.
Eagle Colorado saw its highest voter turnout in the town's election history. About 2,200 residents voted in the election, about 61 percent of Eagle's 3,585 registered voters. Plans for Eagle River Station included 552,000 square feet of commercial space with a Target store, a hotel and 581 condos on the east side of town.
Compare planned CRE sq/ft to # of voters...
they had this with their option arms that were not amortizing (pick-a-payment)
None of it helps the un/underemployed
It means nothing. The revised pending home sales number is the number to look at. It usually comes out after the twice revised unemployment numbers.
We wish we could proclaim a Happy New Year in housing. But until more is done to help struggling homeowners, the portents are not good.
The help is not coming.
It never was.
The plan was to make debt slaves out of as many as posable.
Then take away the property of those that don't comply.
Agreed w/part of it.
Real reason ( IMHO), is what it is, with GM/Chrysler,Health Care,Banks,it's Fannie n' Freddie holding 60% + of the paper on all mortgages.
By giving them a rope w/no end, it has (Gv't) now taking control of the housing industry..............
Add all that up, (plus Cap & Trade, if/when it get's thru), and you have yourself a large steaming bowl of FASCISM.
Nationalization of every major part of our economy, is Fascism.
Mussolini knew it well. So does Chavez...............what's that old saying?, "Your known by the company you keep?".
Funny, how times change, but the power hungry never do.
Bingo.
This is precisely the plan. Rob from the poor and give to the rich. Middle class is not the rich.
So far the plan has been executed perfectly. Look at any metric you wish (other than big ass-fucking corporations or bought and paid for Congress). The money is only going out of the average Joe's pockets right into the rich, nothing in.
Even collective bargaining is weak.
Where is justice!? It's a punch in the face to every banker which will put you on the enemy combatant blacklist.
What a shameful disgrace the US is.