Pending home sales were up slightly in December from a month earlier and substantially from a year earlier, but this has less meaning than it used to. Pending home sales have correlated closely with actual sales closings historically. This can be seen in the following graph. It can also be seen that this relationship has broken down in 2008 and 2009.
The annual data does not show the degree to which pending home sales are racing far ahead of actual closings. To get a better understanding, the monthly data since June, 2008 is plotted in the following graph. The existing home sales volume has been divided by 6 to adjust to the scale of the pending home sales index.
We can see a diverge in the rates of decline of the two meaurements in the second half of 2008. This indicates that more pending deals were falling through than would usually be the case. For the historical relationship to exist the two curves would decline together.
In 2009 the divergence continued. In the second half of the year, the divergence accelerated. The most notable effect appears to possibly have come from a "feedng frenzy" of offers in the final months of the 2009 first time home buyers tax credit. It appears that many more than the usual signed contracts fell through.
Possible reasons for failure to close include:
1. Financing problems.
2. Sales contigent upon the sale of another property could be more common when sellers are anxious and falling through more than usual because of the weak market leading to more failed contingencies.
3. Unexpected job loss could also have caused a buyer to back out.
4. Buyers could be making offers on multiple distressed properties and then selecting only the deals that appeared most favorable after further inspection.
It appears that pending home sales have become a less reliable indicator of actual existing home sales that are completed (closings).
Other housing news and analysis comes from Calculated Risk with a number of interesting articles on housing:
1. Las Vega is seeing short sales soar while foreclosures diminish. Short sales occur when the lender agrees to accept less than the outstanding mortgage balance when a house is sold. This is a proxy for foreclosures that may net the lender more than obtainable through foreclosure, results in a higher sale price than might occur being sold out of foreclosure, and is less damaging to the mortgagor's credit record. Short sales in lieu of foreclosure are being pushed (instead of mortgage modification) by the government.
2. Nationally, more than 9% of FHA mortgages are three months or more in arrears, a reliable predictor of foreclosure filings to come. According to a report by Dina ElBoghdady and Dan Keating in the Washington Post, delinquency has increased by 40% in the past year (December to December).
3. Homeowner vacancy rates were reported by the U.S. Census Bureau to be 2.7%, up from the historical norm of 1.7%. These numbers are obtained by survey of the population of homeowners.
The total residential vacancy rate, deeper into the report cited above, is 14.7%. This is a total of 18.9 million units and is virtually unchanged over the number a year ago. Of these, 4.6 million are seasonal. The remaining 14.3 million are divided as follows: 2.1 million for sale, 4.5 million for rent and 7.7 million are "other".
As Calulated Risk risk points out, the total number of homeowner vacancies is about 2.0 million, about 750,000 more than the historical average. The number of homeowner vacancies is the same as the number of units for sale. That is a coincidence; there are many homes owned by builders and lenders for sale and not all vacant homeowner vacancies are for sale.
The troubling part of the total vacancies is the 7.7 million classified as "other". These can't all be abandoned uninhabitable structures, can they? Shouldn't abandoned structures be eliminated from the survey? If any significant part of the 7.7 million other are homes that will soon be for sale, the overhang of available housing could be at least a year of additional inventory. This is in addition to the 2-3 million foreclosures expected in 2010, another 5-7 months of additional inventory, yet to come to the market.
The bottom line is that the homeowner vacancy number seems to be a flea on the elephant. It is only about 11% of the total vacancies. The total vacancy numbers potentially offer much more market impact.
4. Residential Investment remains weak, according to data from the bea. That can be seen in the graph from Calculated Risk, where an extensive discussion is available.
Click on image for enlargement
5. Banks report tightening lending standards and weak demand for prime mortgages. See further discussion at Calculated Risk.
Put all this news together in one sentence? Don't expect 2010 to be much stronger in the volume of housing sales than 2009 and over supply may push prices lower.
Disclosure: No positions.
