Pending Home Sales Up: Does That Mean Anything?

The housing market seems to be sprouting green shoots right and left — or is it?

Reuters reports that the NAR’s pending home sales index was up for March:

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in March, rose 3.2 percent to 84.6 as first-time buyers waded into the market to take advantage of favorable prices and mortgage rates.

A separate report from the Commerce Department showed U.S. construction spending rose 0.3 percent in March, the first increase in six months.

Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut, said the pending home sales report added to evidence that sales have reached a bottom.

“That’s critical because once sales bottom, it’s only a matter of time before you work off excess inventories. That’s the key to stabilization in the financial system and the economy at large. We’re closer to that than people thought just a few months ago.”

Well and good and it fits with the post I put up yesterday about the activity at a San Diego new home development. But, then I find this post in Housing Doom:

Who’d have thought?

Speculators and prospective home owners came out in droves to buy homes in the Phoenix area. M did an early check of the sales numbers, and here’s the unofficial sales for April:

Listings 39,547
Under Contract 16,779
Sold 8,419

These numbers are only preliminary- agents have several days to update their listings, so ARMLS will likely report a higher number.

Listings have dropped to a level we haven’t seen since April 2006. Sales are at a level we haven’t seen since October 2005.

I will undoubtedly be accused of being a perma-bear, but I don’t believe, even with sales at record levels [Only 14 months have been busier] that this indicates “recovery”. Only the lower half the market has recovered.

Check out this chart from last week’s post:

Higher end properties are going to have to drop their prices significantly to adjust to this market. That will tend to put downward pressure on all prices. High speculator participation and a cooling economy are also risk factors for the market.

It’s nice to see that there are affordable homes for those who want them, but there are still risks involved when purchasing Phoenix real estate.

So, sales are way up but only in a small sector of the market and investors are driving a large part of that market. That doesn’t sound particularly healthy, in fact it kind of sounds like the dynamics that prevailed during the boom.

I poked around the Web and even the realtor sites that hype the market don’t play down the investor angle. One put investor purchases at 20% of the market in March but they didn’t supply any sources to validate the data, however, there seems to be enough anecdotal evidence to assume that investors are part of the demand.

Phoenix obviously isn’t the whole market so I don’t want to make too much of a case one way or the other that what is happening there means a lot to the overall market. It is, however, interesting and a bit perplexing. Frankly, I don’t know quite what to make of it.

Before I let go of this bone, let me post one other graph. It’s from Jake at EconomPicData. com.

As you can see, the pending home sales number bounces all over the place and it has a lot of seasonality. Any short series of data points probably don’t mean all that much.

Comments

[jamookey:]

It's at least some sign of a bottom.These numbers are'nt going to set the real estate market on fire,but it is a start.Bears are welcome to their opinion,but even bear markets turn eventually.We seem to be in a bear mindset,thinking and predicting caution,even fear,but a lot of bears lose their asses as markets turn and they stay on the fear fence.

May 05 09:06 AM

[Prudent Man...:]

Anyone who is a professional in the real estate industry will tell you contracts mean nothing it is closings that count. Furthermore, real estate short sales are skewing the data. Most of these fall apart before closing and it takes several contracts to finally make a deal.

What I fear is that many banks, because of their precarious capital base, will sell their inventory to weak, speculative buyers to get it off of the books. If this is the case, and it is in some cases, this property will soon be returned to inventory and where the financial institution financed the deal they will have increased mortgage delinquency.

The over-built residential and commercial real estate is an excellent case study in inelastic supply and how it should be treated differently by economists than other excess inventories..

May 05 09:07 AM

[Mad Hedge F...:]

I doubt it. March pending home sales jumped a surprising 3.2%, according to the National Association of Realtors, prompting another tidal wave of calls that we have hit bottom in the real estate market. Obama’s $8,000 tax credit for first time purchasers ($14,000 in California), record low mortgage rates, a feeding frenzy by sharks and flippers, and the lowest prices in a decade were the cause. Contracted purchases were up 3.9% in the West (California) and down 5.7% in the Northeast (Michigan). I think we are anything but out of the woods. Several state and federal moratoriums on foreclosures are about to expire, unleashing another onslaught of foreclosures and short sales on the market. While inventories are shrinking for the moment because of the near shut down on new home construction, unemployment induced delinquencies are still soaring. At this stage of the economic cycle, you can count on seeing a raft of contradictory data. I’m afraid that I’m a glass half empty guy on this one. With all of the reasons to buy listed above, where are the multiple offers and the bidding wars? Continue to rent.

May 05 10:43 AM

[Stone Fox C...:]

I've recently looked into investment properties in FL and the majority of the units on the market are short sales or foreclosures. These houses are listed at incredible prices. In many cases, houses listed for much less then the replacement value. One dynamic I'd like to see explored is how many locals in areas like Phoenix or Florida can afford to buy a house. If the local was just foreclosed on, I'd presume they can't get a loan. Doesn't that just leave speculators and a handful of smart locals that didn't get caught up in the boom?

One interesting note is that a couple of houses that I've asked about already had multiple offers. That should work off the inventory.

May 05 11:26 AM

[SoCalsurfbum:]

"Pending Home Sales Index, based on contracts signed in March, rose 3.2 percent"...

The more I see stuff like this, the more I realize the market is not paying attention and takes everything at face value.

This is a bogus number. Of course pending home sales are higher in March than in February... this has happened since housing records have been kept... it is called seasonality.

Let me make a prediction and I would love to bet anyone on this, April pendings will be higher than March. Dec.-Feb. are the slowest sales months every year, March picks up a bit... April is when the spring selling season really gets ramped up and lasts through July, then slowly falls off.

Seasonality doesn't make a housing recovery. By the way the real number is a 1.1% increase in pendings vs. 2008 and as was mentioned earlier, a pending does not mean a closing.

Back when the market was good, our close rate on pendings was about 75-85%... I can only imagine how many pendings will fall through in this market. Between difficult financing conditions, required down payments, getting short sale approvals and the inability to unload the old house at an acceptable price (which is probably the largest impediment) will make for either very long escrows or sales that just don't close.

What is happening now is not what a market bottom in housing looks like. People have a very short memory when it comes to history.

May 05 12:01 PM

[Richard K:]

Good news is always welcome, but I take with a grain of salt most good news announcements from NAR, NAB, or anyone working for Team Obama. You don't ask the cheerleading team how the game is going.

May 05 12:03 PM

[Annualgain:]

"Of course pending home sales are higher in March than in February... this has happened since housing records have been kept... it is called seasonality. "

Take a look at the real data from the source: www.realtor.org/wps/wc...

The numbers are seasonally adjusted, so the increase is due to something other than seasonaility. Or, if you prefer to look at the non-seasonally adjusted numbers, you will see that pending home sales were up in March 2009 vs. March 2008. The numbers are not as bogus as implied by SoCalsurfbum.

May 05 12:54 PM

[mallarde:]

The bifurcation between the low end and the high end holds true in SoCal. High end properties continue to sit on the market because asking prices have not come down enough. (I would estimate 5% to 10% in my area.)

One condo came on the market down the street listed for $50K more than the same property in late-2006. They are still reaching for the stars, and I suppose there are still real estate agents willing to try to sell this B.S. to potential buyers.

I will be a renter for much longer.

May 05 01:58 PM

[j_remington:]

so a few people decided to rush their house purchase for tax reasons(April 15th)...now that is over

May 05 02:33 PM

[Socialism c...:]

"It’s nice to see that there are affordable homes for those who want them, but there are still risks involved when purchasing Phoenix real estate."

Phoenix is DEAD. Who wants to live in a desert, risk of dying from lack of water, buy a home in a city with highly escalating kidnapping rates -- the highest in the nation already, and which is under siege from Mexico...and when the Maricopa County sheriff actually deals with the problems, gets "investigated" by the new regime for his "unpatriotic" tactics!?

It's DUMB to live in the desert. Let Phoenix and Vegas rot.

May 05 04:16 PM

[Socialism c...:]

Not just in SoCal -- sellers here in WI are largely refusing to come down too. Same homes have been listed for 6 months -- I've been watching them -- and prices have NOT been dropped. Fine. I figure I can wait them out...maybe even save up and build at lower cost and without a mortgage in a few years.


On May 05 01:58 PM mallarde wrote:

> The bifurcation between the low end and the high end holds true in
> SoCal. High end properties continue to sit on the market because
> asking prices have not come down enough. (I would estimate 5% to
> 10% in my area.)
>
> One condo came on the market down the street listed for $50K more
> than the same property in late-2006. They are still reaching for
> the stars, and I suppose there are still real estate agents willing
> to try to sell this B.S. to potential buyers.
>
> I will be a renter for much longer.

May 05 04:17 PM

[sickofthehype:]

And anyone seasoned will also tell you that the number of listings count as well, which are down big time. And to correct you on the banks unloading REO's to 'speculative buyers' that is clearly not happening. There's this thing called underwriting that suddenly these days is being taken seriously. No 100% financing, no garbage loans - it's either you have a big down payment or you don't. Nice try.


On May 05 09:07 AM Prudent Man CFA wrote:

> Anyone who is a professional in the real estate industry will tell
> you contracts mean nothing it is closings that count. Furthermore,
> real estate short sales are skewing the data. Most of these fall
> apart before closing and it takes several contracts to finally make
> a deal.
>
> What I fear is that many banks, because of their precarious capital
> base, will sell their inventory to weak, speculative buyers to get
> it off of the books. If this is the case, and it is in some cases,
> this property will soon be returned to inventory and where the financial
> institution financed the deal they will have increased mortgage delinquency.
>
>
> The over-built residential and commercial real estate is an excellent
> case study in inelastic supply and how it should be treated differently
> by economists than other excess inventories..

May 06 12:18 AM