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Pending Home Sales Fall Short of Year Ago Sales Surge

May 29, 2014 | 4:29 pm | Charts |

2014-april-phsi-05-29-2014
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The NAR released their Pending Home Sale Index today for April which aggregates signed contract data for the month. It is generally 2 months closer to the “meeting of the minds” between buyer and seller than their existing home sale report, that is based on closed sales (and 4 months faster than Case Shiller).

Pending Home Sales Index is not “forward looking”
In my chart above, and if you know me, I hate seasonal adjustments (SA) in housing data so this chart uses NAR’s reported numbers without adjustments. NAR always frames this release series as “forward looking” when it really is “less backward looking” because it is based on contracts, not closed sales. The end of May report reflects April contracts, half of which were probably signed in Late March. With a 2 month spread between contract and closing dates, this report is the most recent US housing market snapshot but nothing about it is actually “forward looking.”

With all the weather talk and mixed housing market messaging over the last month, this release brought us a broad range of interpretation, from “plunging” to “edging higher.”

Well, which is it? Or could it be both? Yes it can. We just need context.

According to Housingwire (uses SA numbers): Pending home sales plunge 9.2% in April So much for that post-winter, pent-up demand

Pending home sales for the month of April plummeted 9.2% compared to April 2013, the National Association of Realtors reported Thursday.

Contracts signed to buy existing homes increased 0.4% in April compared to March 2014, but that’s coming off three months of flat sales blamed on cold weather.

The expectation had been for at least a 2% gain month-over-month.

According to Diana Olick at CNBC (uses SA numbers), Pending home sales up just 0.4% in April, missing expectations

Warmer weather and higher expectations failed to cause a meaningful surge in home sales.

Signed contracts to buy existing homes increased just 0.4 percent in April, according to a monthly report from the National Association of Realtors (NAR). The expectation had been for at least a 2 percent gain sequentially.

The Realtors’ so-called pending home sales index is now 9.2 percent lower than April of 2013.

What’s going on?

If you look at the above chart you can see that last year’s pending home sales were surging up until May 2013, their highest level in 3 years (since the federal homeowner tax credit program as part of the stimulus). The surge in contracts in the first half of 2013 was born out of consumer fears that rates were going to rise. In addition, all the pent-up demand accumulated during the two year period preceding the US election and fiscal cliff deadline was released into the market. Many fence-sitters became decision-makers.

This winter’s harsh weather could have delayed buyers and we should be seeing this uptick in activity by now. We probably are seeing it but it no match for the year ago surge in activity but now the market is being characterized as weak or weakening. The problem with that description is it assumes that 2013 was a normal trend of an improving market. Well it wasn’t.

So yes, sales are down from the 2013 sales surge anomaly and the weather time-shifting buyers forward further into spring this year was no match for it. In fact, I suspect the next month will show the same type of “weakness” and the PHSI results probably can’t show real improvement at least until June.

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NAR Pending Home Sales Had Biggest “February to March” Jump in 4 Years

April 28, 2014 | 4:52 pm | irslogo |

4-28-14PHSI
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After all the housing news drama of the past month, I thought it was interesting to see the negative streak broken. Still, sales are below year ago levels after what I described as a “release of pent-up demand” that was caused by the expiration of the “fiscal cliff” and the looming rise in mortgage rates last year.

Although home sales are expected to trend up over the course of the year and into 2015, this year began on a weak note and total sales are unlikely to match the 2013 level.

All the indices NAR publishes bother me because they include seasonal adjustments and those adjustments can be very severe. The chart above has no seasonal adjustments so you can see how much adjusting has to take place to smooth out the line. I thought I’d take a look at the month-over-month data that wasn’t seasonally adjusted to see if the same pattern occurred.

4-28-14PHSIfebtomarch

Yes, month-over-month pending sales rose the most since 2010 when the market was wildly skewed (higher) as a result of the First-Time Homebuyer Credit (federal first time buyer and homeowner tax credit).

February to March 2014 had the largest increase in contracts than the same period in each year since 2010.

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Pending Home Sales Down 10.2% YOY And That’s Not A Bad Thing

March 27, 2014 | 11:55 am | Charts |

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NAR released their pending home sale index today and the news was not unexpected. US home sales volume has slowed since last spring’s taper miscue by the fed which caused mortgage rates to jump. If you look at the May surge in pending sales, sales volume, seasonally speaking (comparing year over year) has fallen 10.2% (unadjusted).

The introduction of QM earlier in the year probably doesn’t help volume levels, but I’m not really convinced that the housing recovery is actually stalling. It seems more like sales levels are settling to more sustainable levels. And as sales go, so goes the insane price gains seen in the national reports.

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NAR Pending Home Sale Index Sort of Goes Negative

October 28, 2013 | 7:31 pm | nytlogo | Charts |


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According the National Association of Realtors, their Pending Home Sales Index fell 5.6% from August to September 2013 (seasonally adjusted), the largest monthly drop since May 2010 after the artificial prop of the 2009-2010 federal homebuyers tax credit expiration caused contracts to drop by nearly 1/3 from bloated levels.

Removing seasonality from the results makes the year-over-year adjustment show nominally 1.1% higher contract volume from September 2013 than in 2012 rather than a 1.2% decline. Still, the results were weak.

Why did pending sales post weaker results?

  • Don’t blame the partial government shutdown – that came later.
  • After the May 2013 Fed surprise announcement, fence sitters surged to the market to lock in before mortgage rates rose further, bloating contract volume over the summer (and why month-over-month seasonal adjustments to this data are so very misleading).
  • The surge in summer sales “poached” from future organic volume that we would have seen in September so we were already expecting a slow down in volume. Didn’t we learn in 2010 what happens when unusual circumstances press volume sharply higher only to see volume fall sharply when that circumstance disappears?

Weaker conditions prevail, but its really not as bad a report result as being discussed – namely because the seasonal adjustments paint a weaker picture than what actually happened, and we expected a decline in activity because the prior several months were artificially pushed higher with so many more buyers rushing to the market to beat rising rates (or the perception of rising rates).

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[NAR] Pending Home Sales Index

June 2, 2010 | 2:16 pm | irslogo |


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NAR released its PHSI today and there were no surprises. The expiration of the federal tax credit for first time buyers and existing home owners (signed contract by April 30, close by June 30) showed its impact on sales trends.

By the way, my above chart shows how ridiculous seasonal adjustments are – the non-seasonal adjusted line better reflects whats going on.

The pending sales data set is about 20% the size of existing homes and is comprised of existing single family and condo sales. Its dubbed a forward looking index but it really is a current looking index. The “meeting of the minds” between buyer and seller occurs just before contract signing. Its forward looking in the context of closing data but it is not forward looking on the condition of housing.

Consecutive M-O-M Gains

  • Sales were up 6% from March to April and up 22% from April 09 to April 10. Last month
  • Sales were up 7.9% from February to March and up 8.3% from March 09 to March 10.

Analysts have expressed fear the housing market will suffer with the end of the government subsidy. But the job market has been improving. The Labor Department is scheduled this week to release employment data for May, and economists surveyed by Dow Jones Newswires are expecting a gain of 515,000 non-farm payroll jobs.

The same thing happened last fall as the initial tax credit within the federal stimulus plan was set to expire on November 30 only to be renewed and expanded a few weeks later. No renewal this time.

Regionally things were not so consistent. Month over month gains in

  • Northeast +29.5%
  • Midwest +4.1%
  • South -0.6%
  • West +7.5%

Buyers they better close by June 30th. Not an automatic assumption in today’s mortgage environment.


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[Pending Home Sales] Tax Credit Wild Card? M-O-M Down 16%, Y-O-Y Up 15.5%

January 6, 2010 | 12:43 am | irslogo |


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NAR released their November 2009 Pending Home Sales Index which ended a 9 month string of increases.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 16.0 percent to 96.0 from an upwardly revised 114.3 in October, but is 15.5 percent higher than November 2008 when it was 83.1.

NAR attributes the drop as a pullback during November related to the uncertainty surrounding the extension of the first time home buyers tax credit which expired November 30th. However it was subsequently extended and expanded to include existing home buyers who have until the end of this April to sign a bonafide contract. We may trivialize the tax credit’s success in the NYC metro area because of the higher housing costs relative to $8,000 and $6,500 tax credits respectively but from my discussions with real estate agents around the country, it did appear to trigger a large portion of home sales in 2009.

What does the 16% drop suggest? More weakness to come?

Yes, but not in the coming months (remember this is a seasonally adjusted stat).

It signifies that the US Housing market doesn’t yet have its own set of legs. No credit = drop in sales.

The credit extension ends in April, the Fed begins their pullout from the purchasing of Fannie Mae mortgage paper, perhaps influencing mortgage rates higher.

The combination of high unemployment, rising mortgage rates and the expiring tax credit in the spring, combined with the elixir of rising foreclosures causes by sustained unemployment at high levels suggests housing sales will fall in second half 2009.

Housing in 2010: Stability in the first half, with more concern for the second half.


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[Seasonalized?, Annualized?] Pending Home Sales Index Up 8th Consecutive Month

November 2, 2009 | 7:00 pm | irslogo |

The National Association of Realtors released its pending home sale index results from September and the results were good as expected:

The Pending Home Sales Index, a forward-looking* indicator based on contracts signed in September, rose 6.1 percent to 110.1 from a reading of 103.8 in August, and is 21.2 percent higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8.

*Note: only forward looking in the context of closed sales.

Yun describes the actual contract activity as less than August but if adjusted for seasonality and annualize, its way up. Extrapolating like this makes me uncomfortable – yes its better news, but not with a solid foundation. Especially the inference that this is a continuing trend.

The uptick in activity was explained as a last minute rush to take advantage of the first time buyer’s tax credit. While its beginning to look like the tax credit will be renewed with income limits expanded, I suspect sales would fall sharply if it wasn’t. Stimulus is designed to prime the pump but it doesn’t feel like prime yet, especially over the next month or two when Case Shiller goes negative.


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[NAR] Pending Home Sales Up 6.4%, 7 M-O-M Increases

October 1, 2009 | 1:03 pm | nytlogo |

Contract activity another way to track housing trends although it’s reliability is fraught with risk since it is a much smaller data set and therefore subject to skew, especially on a local level. However, on a national level (as far as that goes) it is the only index of this kind we have.

From Reuters/NYT:

Pending sales of existing U.S. homes rose sharply in August, for a seventh consecutive month of gains, reaching the highest since March 2007, data from a real estate trade group showed on Thursday.

And the NAR press release:

Pending home sales have increased for seven straight months, the longest in the series of the index which began in 2001, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in August, rose 6.4 percent to 103.8 from a reading of 97.6 in July, and is 12.4 percent above August 2008 when it was 92.4. The index is at the highest level since March 2007 when it was 104.5.

[Recommendation to NAR] – contracts are not “forward looking” but rather they are “current looking.” Housing futures indexes like Case Shiller are designed to be “forward looking.” PHSI is forward looking as far as it relates to closed sales but not as a way to predict the future market trend in real terms.

Here are the raw PHSI data points.

Seven months of m-o-m seasonally adjusted contract sales activity is certainly encouraging, especially because it is an index of sales rather than prices. Honestly, in light of what is happening on the foreclosure front, I am not sure what this run of good news actually infers. br clear=”all”>

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[Solid Masonry] If Anyone Is Keeping Score, The Home Team Is Hanging In There

April 11, 2006 | 11:17 pm | irslogo |

John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. Here is his weekly post called Solid Masonry. This week, appraiser John Mason ponders the housing market strengths and weaknesses in Technicolor. Jonathan Miller


I was thinking about the various factors that drive the housing market and wondered how these might compare to a year ago. So I formed a partial list of some likely factors to impact home prices, along with my assessment of how they compare to a year ago. This is by no means all inclusive, as there are too many factors to consider them all. I also didn’t put them in any particular order, as their priority varies from one time period to another. As an example, in a strong market would-be-buyers are less deterred by rising mortgage rates than would be true in a stagnant or declining market. All that (disclaimer stuff) being said, here is the list, along with my assessments:

Red = Less Favorable Black = Neutral Green = More Favorable

  • Mortgage Rates We don’t really need a link for this one. For those who have been in a coma, mortgage rates are up, still rising and expected to rise some more.
  • Employment & Wages While private job sector growth is back in the black with recent gains now exceeding losses and unemployment has sunk below 5%, “real wages” have remained relatively flat during the past ten years.
  • Taxes Despite the magical theatrics of giving with one hand and taking with the other, the fact remains the average American is paying more (in dollars and percentage of income) in total taxes. Many of the tax reforms at the national level result in expenses being passed down to the state and local governments, which is why property tax increases are running as high as two to three times the rate of inflation. But to be sure, there are many other factors contributing to rising taxes, including increasing energy costs, the nation being at war, the ever expanding government (no matter who is in power), increased deficit spending.
  • Inflation Inflation has clearly been threatening, but the Federal Reserve’s aggressive tactics have kept it in check and it still remains historically modest.
  • Affordability (Home Prices vs. Wages) Mortgage rates have increased, but they remain historically modest or low (depending on how old you are). While there are many links debating the “affordability” issue, the fact remains that more first-time buyers are financing larger percentages of the purchase price while allocating increasing portions of their monthly income to housing [pdf]. If you think they aren’t over-stretched, ask yourself this question, could you afford to buy your home today?
  • Energy Costs There is no doubt about which way energy prices have gone, with all energy users paying exceedingly more in each of the past three years. To add insult to injury, oil and gas futures shows no signs of abating. High energy prices are like an unavoidable tax and sooner or later these costs can no longer be “absorbed” and must be passed on.
  • Construction Costs Here we see some of the rising costs builders are faced with. (Please forgive me, as I did include this link in one of my posts from a couple weeks ago.)
  • Tax Laws Just a few months ago there was serious talk of capping home owner’s mortgage interest and property tax deductions, along with some reasonable arguments to support the move. Lately it seems Washington has been too preoccupied to even remember they spoke of such reform and I could not find current links regarding the matter. Keep your eye on this one though, for many believe the Tax Reform Act of 1986 had devastating consequences on the real estate market.

No doubt there can be a significant lag between these factors and how they impact the housing market, but most of these trends are well over a year old. Considering how many of these factors have trended unfavorably (red), the housing market is more resilient than some might expect. So if anyone is keeping score, the “home” team is hanging in there.

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NAR Says We Cooled It: Pending Home Sales Index Dropped

December 7, 2005 | 12:01 am |

The NAR released its Pending Home Sale Index [NAR] which showed that the real estate market was easing. “The National Association of Realtors said its index of pending home sales, based on contracts signed in October, declined 3.2% from September to a seasonally adjusted 123.8. The reading was down 3.3% from a year earlier. The index was 100 in 2001.”

Positive economic news seemed to offset the weak housing news. Productivity fell, suggesting the inflation pressure is weakening. The post NAR stuck on spin cycle [Property Grunt] makes a strong case that the NAR phrasing of a soft landing does not correlate to the data that they released. Its shows how much spin we are subject to.

NAR Pending Sale Index [pdf]

Note: “The Pending Home Sales Index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 closely parallels the level of closed existing-home sales in the following two months.”

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NAR Pending Home Sale Index Weakens, But Still Nearly At Record Levels

November 6, 2005 | 9:28 pm |

Since we are in a changing market, it is also important to look at price indicators that are closer to the point where the “meeting of the minds” occurs between buyers and sellers. As I indicated in a prior post on Matrix, the national housing stats for existing home sales (NAR) are based on closed sales and new home sales (Census) are based on contracts. The NAR also has an indicator based on contracts called the Pending Home Sales Index or PHSI [PDF]

PHSI

Source: NAR

Pending sales eased from last month but was at its second highest mark on record [RISMedia]

Whats really interesting about the stats is the difference between seasonally adjusted stats and the stats that were not seasonally adjusted. For example, the seasonally adjusted national numbers showed a 0.3% drop in contract prices while the unadjusted numbers showed a 12.7% drop. Quite a difference betweent the results. Annual changes were up 3.3% seasonally adjusted and up 2.7% unadjusted.

At the end of the day, these numbers tell us that contract prices, as a leading indicator, were slightly weaker nationwide compared to the prior month.


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Mortgage Apps Rise As Rates Fall: Will Home Sales Rise Too?

September 8, 2005 | 12:13 pm | nytlogo |

With the drop in mortgage rates that started in early August, it comes as no surprise that mortgage applications are now starting to rise

The next thought that comes to mind is whether or not home sales will follow. Sales activity seemed fairly brisk in New York, althought the NAR’s Pending Home Sales Index [Note: PDF] showed modest declines in all regions except the south. The idea here is that contracts are the better indicator of the current state of the real estate market. However, this is more of an informal survey from their members. It is still behind the market since they have only report through mid-July.

With Katrina and higher oil prices, it will be interesting to see what happens in September. I’m thinking good thoughts.

I will probably get a little annoyed if interpretation the the next round of housing data does not consider that August is usually one of the seasonally slowest times of the year for housing sales. Hence the infamous, seasonal adjustment should be applied. See Lies, Damn Lies, And Government Statistics: Part I

One other thought is the idea of using mortgage applications in predicting home sales. There is an interesting article published from the Dallas Fed Can Mortgage Application Help Predict Home Sales?[Note: PDF] Its a bit dry but my sense is that the mortgage app data really lags too much to be an effective predictor of home sales without a lot of tweaking.

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