Pending Home Sales Up; Failed Contracts Also Up 8 comments
an article to
-
Font Size:
-
Print
- TweetThis
A press release yesterday from the NAR (National Association of Realtors) announces a record in pending homes sales (here). A quote from the 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.
Great news!!!! The existing home sales market is booming. The NAR says this indicates a broad based improvement in the housing market. However, there are cautionary notes in this press release:
Lawrence Yun, NAR chief economist, said not all contracts are turning into closed sales within an expected time frame. “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules,” he said.
And later in the release:
There is likely to be some double counting over a span of several months because some buyers whose contracts were cancelled have found another home and signed a new contract to buy,” Yun explained. “Perhaps the real question is how many transactions are being delayed in the pipeline, and how many are being cancelled? Without historic precedents, it’s challenging to assess.”
The above notes are not the only factors that might throw cold water on the pending sales picture. There is a second press release from the NAR, also yesterday (here). In this release, they discuss the data released by the Mortgage Bankers Association which reveals that last year nearly 1/3 of all mortgage applications were denied. This was a 29% increase over 2006. This could potentially be the biggest factor and is not discussed in the previous release.
The data for failed mortgage applications covers 2008. The pending home sales are eight months later. Does anyone believe that mortgages are any easier to get in 2009 the they were in 2008, nearly 2/3 of which occurred in the time before Lehman? If we assume that mortgages are as available in 2009 as they were in 2008, then 1/3 of the pending sales for August will not close for failure to finance alone.
If we make a logical assumption that a larger percentage of mortgages were approved through August 2008 than after, then the 12.4% increase in pending home sales for August 2009 compared to August 2008 does not reflect as large an increase in sales that actually close. It is quite possible that the failure to close in August 2009 is so great that more than the 12.4% increase in pending sales could be lost.
This analysis can not be firmed up without a finer detail of data (distributed across months), but there is enough here to totally dampen any enthusiasm about the good news trumpeted by the NAR.
When I see some unconnected dots in existing home sales and mortgage data, I can only assume they are not connected by the NAR because it does not service their purpose. The purpose of the NAR is to promote an enthusiastic consumer base for home sales. My assumption is that there is nothing here that would support their agenda.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
"The 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 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons."
you cannot compare 2006 to 2007, 2007 to 2008, or 2008 to 2009. We are in a middle of the greatest show on earth.
John, you are correct in pointing out the NAR only spins things to the advantage of the industry.
The mortgage data I have excludes FHA and shows August ok, but a falloff in September (seasonally adjusted). there might be a small bump up in August - but the crap hits the fan in september.
The free-marketeers are flumoxed because the government is fooling with the free market so they can't be sure if any improvements are due to free people doing what they want or if the government induced the latest activity. The Keynesians are puzzled because their stimuluae should be multiplying by now. And yet John Lounsbury shows them both up.
A pox on both their houses and no pox on John Lounsbury's house.
None of the facts come as any surprise: More mortgage applications are being rejected, because acceptance standards have tightened, and in the recession, some of the applicants probably lost their jobs while the application was being processed. More home contracts are being offered and accepted, because housing prices have become more reasonable, sellers are anxious, and there is a pent-up demand for buyers. Appraisal standards have tightened up, because a natural reaction of appraisers to the housing blow-up is to get defensive and protect themselves with tighter standards rather than find ways to give out high-enough appraisals for mortgages to get approved.
Bottom-line, we can expect all of these trends to continue, and it is going to be a long time before most statistics from the housing/mortgage industry can be interpreted "normally" again. They are going to continue to be lumpy and often seem self-contradictory.
I can only speak anecdotally, but I bought a rental property during the peak of the banking craziness during the fall of 2008. It was a foreclosure and it was selling for 1/2 its previous selling price 2 years earier - and it was cheap as far as the cost of buying a house goes. A person slinging burgers could probably afford the mortgage. I seriously low balled on the price and had 12 other people bid against me (I was told that my bid was the lowest of the group). After several weeks of the other 12 guys failing to get a loan, the bank called me and said the house was mine. I honestly don't think it is that hard to get a cheap loan like that now.
On Oct 02 12:08 PM 1stFRONT wrote:
> This is situation in all US banks, some have no assets, no liquidity
> and will go bust first, the others that have daily high trading volume
> are the black holes, also with no assets and no money but with a
> high trading desks order clicks popularity. This volumes are not
> normal, it reflect very high percentage of RUN ON A BANK candidates.
>
> Only we have full RUN ON THE BANK list. Is your bank next?
> tinyurl.com/okjucw
>
> US Price % Gainers
> Cowlitz Bancorporation $1.35 +25% Volume 6100
> Tidelands Bancshares $3.40 + 21% Volume 4500
> Putnam Savings Bank $3.02 + 15% Volume 100
> River Valley Bancorp $15.74 + 12% Volume 100
> Patriot National Bancorp $2.35 + 12% Volume 1700
> Monarch Community Bancorp $4 + 12% Volume 100
> Siebert Financial Corp $2.62 + 12% Volume 2250
> The Elmira Savings Bank $14.88 +11% Volume 800
Excellent article , based on facts . Thank you .