Pending Home Sales Tumble As Surging Mortgage Rates Paralyze Housing Market

Tyler Durden's picture

One month ago, even before the recent surge in mortgage rates to the highest level since April 2014...

 

... we noted that pending home sales had stalled, rising a barely positive 0.2%,, and well below expected, a number which we predicted was set for much more pain in the months ago.

Moments ago this prediction was confirmed when the NAR reported that November pending home sales plunged to their lowest level in nearly a year, sliding 2.5% in the month well below the 0.5% consensus forecast (and below the lowest -1.5% estimate), "as the brisk upswing in mortgage rates and not enough inventory dispirited some would-be buyers."

On a year over year basis, the annual drop was the worst since August 2014.

Only the Northeast saw monthly and annual pending sales gains last month.

The details:

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, declined 2.5 percent to 107.3 in November from 110.0 in October. After last month's decrease in activity, the index is now 0.4 percent below last November (107.7) and is at its lowest reading since January (105.4).

According to the NAR's perpetually cheerful chief economist, Lawrence Yun, the ongoing supply shortages and the surge in mortgage rates took a small bite out of pending sales in November. "The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” he said. "Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract."

It gets worse: with 2017 at the doorstep, Yun says higher borrowing costs somewhat cloud the outlook for the housing market. This was evident in NAR's most recent HOME survey, which found that confidence amongst renters about now being a good time to buy has diminished since the beginning of the year1. The good news, according to Yun, is that the impact of higher rates will be partly neutralized by stronger wage growth as a result of the 2 million net new job additions expected next year.

"Healthy local job markets amidst tight supply means many areas will remain competitive with prices on the rise. Those rushing to lock in a rate before they advance even higher will probably have few listings to choose from," said Yun. "Some buyers will have to expand the area of their home search or be forced to delay in order to save a little more money for their down payment."

Existing sales are still expected to close out 2016 at a pace of around 5.42 million, which will eclipse 2015 (5.25 million) as the highest since 2006 (6.48 million). In 2017, sales are forecast to grow roughly 2 percent to around 5.52 million. The national median existing-home price is expected to increase to around 5 percent this year and 4 percent in 2017.

"Much more robust new home construction is needed to relieve inventory shortages and lessen the affordability pressures present throughout the country," added Yun.

The geographic breakdown showed pervasive weakness by region:

  • The PHSI in the Northeast nudged forward 0.6 percent to 97.5 in November, and is now 5.7 percent above a year ago.
  • In the Midwest the index declined 2.5 percent to 103.5 in November, and is now 2.4 percent lower than November 2015.
  • South decreased 1.2 percent to an index of 118.7 in November and are now 1.3 percent lower than last November.
  • The index in the West fell 6.7 percent in November to 101.0, and is now 1.0 percent below a year ago.

Expect much more pain for housing, which as Mark Hanson noted recently is the least affordable it has ever been for buyers who need a mortgage, in the coming months which will promptly spill over into all other areas of the economy.

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Obadiah's picture

buy at the top bitchez

LetThemEatRand's picture

I think it will be different this time.  They've unloaded most of the bad mortgages from the big banks onto taxpayers, mortgage insurers, and smaller lenders.  They reinflated the bubble precisely to allow this to happen.    And don't forget that many of the houses that have been selling at high premiums were bought with cash by individual investors seeking yield but who were afraid of the stock market.  The Fed does not care if those investors lose everything.  The Fed is fine with another housing bubble collapse so long as Fed's owners/shareholders can make money on the way up and the way down.   Imagine knowing (which the Fed does) if and when they are going to keep the screws on the housing market so you can reliably bet against it.

Probably a good time to short the big mortgage insurance companies.

Ramesees's picture

What does the Zillow map listing purport to tell us?  

tche1tsman's picture

The number of homes at auction or in a pre-forclosure condition.

dogfish's picture

All the forclosures preforclousers and auctions.

Ramesees's picture

OK, so is that a lot for Lawrence, MA?  I don't follow that market.  What are we to infer from that map? 

http://www.zillow.com/homes/for_sale/New-York-NY/fore_lt/pmf,pf_pt/6181_...

There's New York.  Can you infer anything from a completely out-of-context map of potential foreclosures?  

dogfish's picture

All these forclosures will certainly effect all future pricing and sales.

rccalhoun's picture

all just a prelude to NIRP

HRH Feant's picture
HRH Feant (not verified) dogfish Dec 28, 2016 11:41 AM

Lawerence MA is a shithole and has been one for decades.

dogfish's picture

Just click on the map for the whole region.

JohnGaltUk's picture

It will be different this time. It will be nations that go bankrupt.

l8apex's picture

Since we're talking about the US, how do you think that's going to happen?  (US can just print $ at will...)  I'd say we need another world war and a new global reserve currency before the US goes bankrupt, but maybe you've got something else in mind.

Suleyman's picture

If they try to print themselves out of it, (they probably will), the dollar goes down. Either bankrupt governments, or their fiats go down. It is too late to turn the ship around.

 

edifice's picture

The US has been bankrupt for over 40 years, since Nixon closed the gold window.

Bad Whitey's picture

Fully agree with regard to cash investors seeking yield.  However, I am certain the Fed has no intention of letting the U.S. housing market "collapse."  I expect new government programs for first time buyers, specifically those with student loan debt to offset the effect of rising rates.  Housing is the key to the entire U.S. economy.  Real estate, renting & leasing account for 13% of U.S. GDP and ownership of real estate motivates millions of Americans to pay their taxes.  

Stalefarts's picture

I once farted in a tiny pup tent after eating 3 helpings of pan-fried trout. The odor melted the seams of the tent and it rained and soaked my parka.

Stalefarts's picture

I'm a graduate of Trump University and learned how to house-flip there. I just slap on paint and install granite countertops and throw down laminate flooring and triple my money in 90 days. Buyers love my properties and I am trying to get a TV show based on my flipping success.

Son of Loki's picture

Reversion to the mean is a Bitch. After >16 years of manipulation and foreign loot flooding the housing markets, the "correction" will be "worse then a burst colon" as my older neighbor likes to say.

ghengis86's picture

colon blow?  sounds delicious!

 

RIP Phil Hart

Winston Churchill's picture

with sage and onion stuffing ?

Bay of Pigs's picture

It most certainly is. People never learn.

CorporateCongress's picture

Soon. Wake me up when pending sales drop 50%

bogdan11's picture

Keep raising interest rates dear FED, the economy is at full employment and home inventories are at record lows (sarc)

SallySnyd's picture

Here is an article that looks at one factor that is having a significant impact on the housing market:

 

http://viableopposition.blogspot.ca/2016/06/nation-of-renters.html

 

It's becoming apparent that, one way or another, consumers of housing in the United States over the past decade simply cannot win.

DogeCoin's picture

This is too much fiction for me to handle. My mortgage broker told me that I needed to buy a house now since rates are going up and that people would rush into the market to lock in low rates. Housing prices can only go up. Are you telling me my broker is lying to me? Are you telling me that this whole housing recovery was a lie and it's whole foundation was based on cheap credit? Are you telling me the government insured subprime mortgages are a scam? How else can I afford a home with my minimum part time wages?? Please save me Freddie and Fannie! Save me American taxpayers! 

ghengis86's picture

i love all the twisted logic that always makes it the best time to buy, buy, buy!!!  lock in low rates before they go up; buy now at historic lows; there's not many houses on the market, so get your offer in now; there's a lot of houses on the market, so get your offer in now before someone else gets a sweetheart deal.

 

lolololol...what a fucking farce!

 

fuck you bernanke/mr. yellen!

Singelguy's picture

Yes, it is all a lie. As interest rates climb, mortgage payments increase so property values will decline. Keep your powder dry for the fire sale.

NugginFuts's picture

Can't wait to see December's number! Should be published right around the end of January....

Translation: more fuel for the equities fire sale.

Ban KKiller's picture

YUN NAR.   I am pretty sure that translates into "buy now". Don't know which language...

saveUSsavers's picture

It's still almost FKING FREE MONEY! IF THESE COCKROACHES ARE ON THIS FKING EDGE... RENT! ASSHOLES

edifice's picture

If you 'own' a home, you rent it from the government.

If you 'rent' a home, you rent it from a landlord, who in turn rents it from the government.

You're renting, either way.

Bad Whitey's picture

So true.  In many ways, homeowners are simply high-end renters.  

mary mary's picture

Off topic: so much for Christmas rally.  I sold some yesterday, luckily.  But am still in VXF, MGC, SLX, and a little bit of DXJF (unluckily).

spastic_colon's picture

this is just shocking news! / s

 

gonna need more foreign tax breaks to buy US real estate

JackMeOff's picture

And the correction has begun...

JusticeTBuford's picture

Buddy tells me today that he is going back in the house flipping market.  I told him he is flipping crazy.  

Pigeon's picture

Ads and signs all over Vegas the last couple years about house flipping. I've seen notices taped to street signs saying "Learn real estate! Learn how to make money flipping! No experience necessary. We will teach you what you need to know! Call xxxxxx. "

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Pigeon Dec 28, 2016 11:02 AM

Yes, "just send us $500 (cheap, Cheap, CHEAP!!! for the huge returns that we've seen before), and we'll send you our limited time, valuable, free shipping, lesson. Hurry!"

The really quality stuff gets posted at 3am in the intersections.

I am Jobe's picture

County and States will push prices higher and rape the homeowners thru taxes. Ah the dream, I own my house crap . Well Austin, TX is raising property taxes by 5% 

Pigeon's picture

How the hell else can the Leftists pay for all of the illegals and malingerers? YOUR MONEY.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) I am Jobe Dec 28, 2016 11:04 AM

Mine just went up by 8.7% to pay for higher government salaries and PENSIONS (they "won't get the best if their pay isn't outrageously high!"). Government a$$holes - forcibly cut my income to increase your government union voter incomes.

Of course property taxes, since they are a percentage of real estate "value," go up when home values go up. Now another 8.7% boost. A$$holes.

bogdan11's picture

''Much more robust new home construction is needed to relieve inventory shortages''-keep building bitches and they will come, ha, ha, ha this Yun guy is so funny must be one of those chinese tycoons ready to plough his dough into our RE market

Pigeon's picture

He's saving the "bad weather" excuse for a snow day -or a day over 100 degrees :-)

DEMIZEN's picture

There is some truth here. Who is going to buy a 50years old sawdust shack and inherit old, tax hungry hood, with funky neighbors and problems. You literally have to be insane to buy that shit on top or downward trend.

Pigeon's picture

Your healthcare premium goes up a couple hundred bucks a month. Rising interest rates result in a mortgage payment a couple hundred bucks higher per month. Between the two, that's about 1/2 of the entire mortgage cost on a $250K house for the average Joe.