October 02, 2006
Pending home sales up
The National Association of Realtors released favorable news today on pending home sales.
From the NAR press release:
Pending home sales are up, indicating a stabilization is taking place in the housing market, according to the National Association of Realtors.
The Pending Home Sales Index, based on contracts signed in August, rose 4.3 percent to a level of 110.1 from a reading of 105.6 in July, but is 14.1 percent lower than August 2005.
David Lereah, NAR's chief economist, said the rise in the index is a hopeful sign. "Our sense is that home sales may have reached a low in August-- the Pending Home Sales Index shows home sales should be fairly stable over the next two months, although a minor decline is possible," he said. "With fewer new listings coming on the market, we should be able to draw down the inventory supply early next year to the point where home prices will rise, but at a slower pace than historic norms."
The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.
Given the barrage of recent troubling indicators about housing, this news, along with the decline in mortgage rates, are two factors to ease some of the gloom. But they are not enough in my mind to erase it altogether.
Posted by James Hamilton at October 2, 2006 08:40 AMdigg this | reddit
It might also be tha case that pending home sales are up, because home buyers are making a second thought about their purchase, couldn't it?
Posted by: Roberto at October 2, 2006 09:44 AM
The larger point is it's STILL DOWN 14.1% YoY! Big whoop that's its marginally smaller from last month when it's still drastically different this year than last. Grab your seat and some cold ones, this ride is going to be long and bumpy all the way down!
Posted by: tate423 at October 2, 2006 10:45 AM
An interesting data point, but I like the amusing the spin in the interpretation of the data. "We expect prices to be stable, unless they go down, in which case they will eventually go back up." In other words, it might rain, but then again it might not.
Posted by: Joseph at October 2, 2006 11:31 AM
The sales are only pending, too. Can you say "cancellations" ?
Jubak inadvertantly stumbled upon an important point the other day when he noted that mortgage rates are almost back down to where they were in the early spring (~6.3%). Yet, the market isn't nearly as strong as then.
Why? Because we're on the downside of the bubble, not the upside, and it ain't turning back.
Posted by: Aaron Krowne at October 2, 2006 11:41 AM
Didn't we learn anything from the "New Home Sales" are up?
Posted by: Johnson at October 2, 2006 11:57 AM
I looked at the corresponding data for July - that was down 16% y-o-y. So, I guess it is better that Aug is only down 14.1%. But then again, June was down 9.6%, May 10.1%, April 11.7%, March 6%, Feb 5.2%, Jan 4.8%.
Looks like the index is gaining momentum downwards, Aug notwithstanding.
Posted by: foo at October 2, 2006 01:22 PM
I would wait for another month or 2 of increases before declaring anything potentialy worthy of easing any gloom. If I was a betting man I'd lay 4:1 odds that September pending sales will be below August
Posted by: Bryan at October 2, 2006 02:00 PM
I think it is pretty clear the RE market has gotten way ahead of itslelf. I think people were buying only because prices were going up. Wages have fallen behind price increases so far it could be another 10 years before we see any house price increases above inflation.
Posted by: sharkbait at October 2, 2006 06:06 PM
Um, does anyone know how the NAR puts the Pending Home Sales number together?
If I'm not mistaken, it's the same methodology used to put the Existing Home Sales number together -- that is, it's a tiny sample AND there is no transparency.
So, suppose I'm a private trade group and I want to spin a story . . . .
Posted by: MTHood at October 2, 2006 08:27 PM
So, if through another data series, compiled by another bunch of guys, you could have predicted that home sales would begin to stabilize, that would offer a sort of independent confirmation of the pending home sales data, yes? Mortgage applications for purchase were fairly trendless from February to early July, took a step down and have been fairly steady from late July till now. Out of that performance, I think we can reasonably expect one or two up months for pending home sales along the way.
The data are what they are. They might do what you expect them to do. They might not. Making up silly stories, not to mention impuning the integrety of people you've never met, to explain why they didn't do what you expected them to do is sort of a waste of time. If the realors wanted to lie about the data, don't you think they'd have done so progressively, rather than posting one or two up months in the midst of a huge slide? Do you really think they'd open themselves up to law suits and prosecution to fudge data that, face it now, most potential home buyers have never heard of?
Posted by: kharris at October 3, 2006 12:21 PM
No lies, but most likely did not trend up. That is the point. Revision madness on the way down.
Posted by: Johnson at October 3, 2006 01:00 PM
Maybe you're right.
However, when I look at the MBA Index, I don't see it as an independent confirmation of the Pending Sales number. I don't see the trend you describe as being so clear-cut. Reasonable people can disagree.
Regarding the veracity of the NAR Pending Sales number, can you guarantee their numbers? Who can? As far as I can tell, there is no independent verification. If they change the mix of their sampling, who would know? (Understood, this doesnít mean ipso facto the numbers are false, and conversely, I canít prove the numbers are wrong.)
I agree, it sounds a bit kooky, and you bring up good points about why wouldnít they have been doing this all along and wouldnít they be concerned about lawsuits.
But ask yourself a couple of questions after looking at the statement coming from the NAR over the last year or so. Would you characterize their statements and forecasts as objective analysis or spin? What is the NARís primary mission? Objective, accurate forecasting of current and future real estate conditions?
Lastly, letís take your last paragraph and suppose it was a response to someone questioning the latest quarterly numbers from Enron in the summer of 2001:
ďThe data are what they are. They might do what you expect them to do. They might not. Making up silly stories, not to mention impuning the integrety of people you've never met, to explain why they didn't do what you expected them to do is sort of a waste of time. If the realors wanted to lie about the data, don't you think they'd have done so progressively, rather than posting one or two up months in the midst of a huge slide? Do you really think they'd open themselves up to law suits and prosecution to fudge data that, face it now, most potential home buyers have never heard of?Ē
Maybe the NAR is entirely unlike Enron. Maybe they are absolutely honest and their numbers are squeaky clean. Iíve got my doubts. Canít prove it, but something doesnít smell right.
Posted by: MTHood at October 3, 2006 03:14 PM
Ah those numbers and their veracity. The independence of those (industry) scribes who are doing their best to bring us (the skeptics, the cynics, the jaded, the tomato throwers and of course, possible clients) The Truth.
Well, there are some revisions which show how earnest they are, no?
So they were all revised down. What's your jaded objection (you possible terrorist)? [Well, if the last month's weren't revised down so much, the modest upturn might not have made an appearance this month. But we are not this fussy. Not really.]
This is tuff isn't it: the land where we are constantly reminded to be on the lookout for terrorists, where Home Security is the biggest growth industry in the country (I make this up people, I am so honest.), we are conditioned to suspect (anything) --shoot first and ask questions later.
Beware that moment of inattention.
So the numbers look reglar, until they don't and the shootin starts...sorta.
We are paying for this war on terror, we are.
Posted by: calmo at October 3, 2006 07:11 PM
The Lereah's of the world can express all the confidence they want, with a realistic hope that no judge will ever find them liable for the financial losses of others. I'm not sure that's treu if you fudge the numbers. If you don't think the FBI cares about the results of unofficial economic surveys, call the folks at U Michigan. "FBI! Open up!"
Beyond that, the "how can we be sure" question comes straight from the intro-philosophy text, the chapter on "scepticism." You can't know with absolute certainty who your own mother is, or whether the what you feel when you scratch your arm is you own finger. Is there any good reason, knowing what we know about trend and noise, to get all dubious about one data point?
Posted by: kharris at October 4, 2006 06:24 AM