Pending Home Sales Index Rises
Leave it to the NAR to focus on the wrong portion of their own data: As we have seen since Housing peaked some 4 years or so ago, the more significant data is the year over year changes in contract signings. The index is based on sales contracts on existing homes (mostly excluding REOs and foreclosures).
And in April, the PHSI actually improved 3.2% from April 2008. To be certain, this is a step in the right direction.
In the past, we have mostly ignored the monthly improvement when the overall number was negative. As the NAR note themselves, “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.”
However, take the the PHSI up 3 months in a row, and the positive annual change as a positive incremental improvement. Not the beginning of a new bull market for houses, but a potential signs things are stabilizing.
Of course, it wouldn’t be an NAR release if there wasn’t something nonsensical in it — this month, the emphasis is on the “NAR’s Housing Affordability Index being is in record territory.”
As we so conclusively demonstrated some time ago, the NAR’s Housing Affordability Index is rather useless.
Previously:
NAR Housing Affordability Index is Worthless (August 13th, 2008)
http://www.ritholtz.com/blog/2008/08/nar-housing-affordability-index-is-worthless/
Source:
Pending Home Sales Up for Three Months in a Row
NAR, June 02, 2009
http://www.realtor.org/press_room/news_releases/2009/06/phs_up
June 2nd, 2009 at 10:19 am
45% of existing home sales were distressed sales.
Are they making it up in volume?
June 2nd, 2009 at 10:36 am
Exactly how the sale of an existing home by itself translates into something worth rejoicing over befuddles me. Without knowing the underlying reason for the sale, it tells nothing, unless it is believed that transactions: good, no transactions: bad.
In any event, if the residential real estate market seems to be recovering, just consider it the result of Uncle Ben deciding to throw some $1.25 trillion at it. It’d be hard for it not to “recover”– whatever that means– in the face of such a flood of money.
Incidentally though, residential mortgage rates are up by about 50 basis points in less than a week. This “recovery” may well be very short-lived, as the artificially-induced demand produced by massive infusions of cash at extremely low rates bumps up against the latent insolvencies the Feds are papering over. This might get interesting.
June 2nd, 2009 at 10:40 am
To paraphrase a question recently posed by a respected financial blogger:
And, can we trust the data any more from the godless Realtors than we can trust the data from the god-fearing socialists in the USA ?
Even if the data were trustworthy, the lack of detail allows for deceptive conclusions, e.g how many of these are likely to get financing in light of stricter underwriting standards and how many of these are real homeowners and opposed to investors who have been sold on the wonders of rental housing via talk radio and nfomercials?
June 2nd, 2009 at 10:47 am
Is there a year to year comparison with distressed sales removed? I assume it was less than 45% distressed last year so non distressed sales are down?
Distressed sales are short sales and foreclosure , right?
June 2nd, 2009 at 10:55 am
Been doing the rounds of Mid-Atlantic communities under construction. I spend a good amount of time in builder’s models. Mostly quickly-constructed THs and SFHs (high-style/low quality, with no real yard — in most, you could borrow a cup of sugar from a neighbor by reaching out the window), primarily located in high density, non-urban areas (the exurbs). Traffic is up. Seems like mostly DINKs doing the shopping — many driving Beemers/Lexi. These folks are going to rue the day they walked into the sales office. It’s difficult to watch, but my job is to make sure they want/desire/lust after what the builder is selling. P. T. Barnum would have loved the first decade of the 21st century.
Realtor associates tell me that existing home sales are up because of the lag/foot dragging of banks selling REOs. Contracts are signed by a prospect, but not ratified by the bank for 90 days, or so, and then the settlement date is far outside the norm. During that period, the homes suffer. many people walk away from the contract (most d get their earnest money back). The agents tell me that they can get 6 or 7 competing contracts on correctly-priced, non-REO homes. Most of these people have had their appetites whetted by a REO contract that has fallen through, and who are acting on anxiety/urgency.
Buy now, or be priced out forever.
I gotta’ find a new line of work. Maybe used car marketing. Sheesh.
On a side note: The builders I work with are reduced in number, but those still going pay promptly. I’ve seen an increase in business from rental communities (one of which was constructed as condos and converted to rentals).
June 2nd, 2009 at 11:13 am
@jc:
I believe “normal” distressed sale levels are in the single digits but that’s something you’d have to look up.
June 2nd, 2009 at 11:16 am
Marcus – Great report. This seems obvious, but the anecdotal feedback is golden!
“Buy now, or be priced out forever.” Ha!
June 2nd, 2009 at 11:20 am
Off topic, but any thoughts on China’s equity market? The Hang Seng went up 10% in 3 days, then dropped 3% in the last trading hour this morning. That market is insane.
June 2nd, 2009 at 11:28 am
as i’ve said, the housing market will probably stabilize this summer. “stabilize” = you can buy and be reasonably confident that you will not be under water a year from now. clearing the inventory is a separate issue.
REO contracts –> the role of credit and credit providers in the housing market has always been underestimated in my view. it’s hard to interpret supply or demand for housing without benchmarking the supply of credit (including quals required of lenders) and the portion of cash/loan in the purchases. the beamers and lexuses imply there is more cash pushing inventory at this stage.
“buy now, or be priced out forever.” –> we are still in a bubble culture. a measly financial meltdown and “change we can believe in” hasn’t changed that. personally i believe the root of the evil is carbon, the “other” bubble market. so long as we think we can claw oil and coal out of the ground forever and burn it forever, we live in a bubble culture. nothing fundamental will change about markets or investing — or people cranking out more babies.
June 2nd, 2009 at 11:43 am
[...] BR with an interesting spin on the Pending Home Sales Index here…. [...]
June 2nd, 2009 at 12:02 pm
“people cranking out more babies.”
That’s the real bubble–the continued growth in the population upon which all these other bubbles depend–that has burst and is the real driver for the economic dislocations being now experienced in the developed world.
Birth rates in the developed world/G-7 are below replacement. Even China has a declining population. Ex-immigration, the US is dying off. Hard to see, unless we can keep attracting immigrants, how any sort of growth is sustainable long-term. Japan comes to mind.
June 2nd, 2009 at 12:10 pm
I am one of those who took the plunge in April. Actually, I sold my big house for a great price and bought a smaller house for an even better price (for me).
IMO it is all a function of the mortgage rates available. Let’s see how the June numbers look after this nice spike.
Live Simply!
June 2nd, 2009 at 12:11 pm
NAR index is not worthless to Realtors when the uninformed rush out to buy houses based on NAR propaganda.
June 2nd, 2009 at 12:12 pm
Signed contracts don’t necessarily mean that the buyers are able to get a mortgage.
I think Geithner’s visit to Beijing was probably about as much fun as a trip to the proctologist.
Somehow I imagine we will hear less QE talk from our helicopter heroes for a while. Treasury rally coming.
June 2nd, 2009 at 12:17 pm
Four asset bubbles: Equities, Commodities, Housing, and Treasuries. No way to hold all four up at the same time.
Now that equities and commodities have been pumped for a while, it will soon be time to attend to the other two.
If the 10-year gets away, the mortgage market is frozen, housing sales are finished and it is Game Over.
Look for a return to deleveraging and Recession Talk now, in order to drive cash back into Treasuries.
June 2nd, 2009 at 12:29 pm
[...] The Big Picture with the details: [...]
June 2nd, 2009 at 1:50 pm
[...] certainly marks a step in the right direction for the housing market, FusionIQ CEO Barry Ritholtz writes on his [...]
June 2nd, 2009 at 2:13 pm
Curmudgeon,
I think you are on the right track. China’s population is not shrinking, but is aging rapidly and will peak about 2050. The leadership knows that now is the time to step on the gas or the population will be too old and massive numbers of immigrants will be needed. The Chinese are very nationalist and large numbers of Indonesians, Africans and Indians would not be an easy or quick fix. Japan, like Germany and Italy, is on the cusp of a negative compounding population crash. Its situation is dire. Without immigration our population would be growing very slowly and aging even more rapidly than it already is. There is a small baby boom going on in the U.S., but its too little too late. Russia is probably in the worst shape as the 2 World wars, crappy communist health care, and then no health care, combined with outsized alcohol consumption and heavy smoking, has devastated its population. The average lifespan has plummeted to 56. I actually talk to people that think a shrinking population is good. Well not when you are part of a ponzi World economy.
June 2nd, 2009 at 2:23 pm
All I can say is that it sure is awesome the average American is getting so rich off their equity holdings….otherwise they might have some issues with the decreasing purchasing power of their dollars. Astounding….
There is a ton of RSI tension building up on the intraday charts of Euro, CL, etc…i’m expecting some amount of consolidation lower next few days…
June 2nd, 2009 at 2:43 pm
AT: Agreed. Waiting for that turn in the $, watching oil and gold very closely.
Those short dollar trades are very very crowded now. Hope no-one starts a fire.
I bet that Johnny R doesn’t get rich by holding those bank stocks he just bought.
June 2nd, 2009 at 2:52 pm
Unfortunately for the folks that want to fade this move, you may need some programs stops overnight, because it sure feels like it will be one of those overnight moves, where we all wake up in the a.m. and see a market that is gapping, one way or the other.
June 2nd, 2009 at 3:10 pm
I sure hope the dollar drops some more and interest rates keep going up for purely selfish reasons:
1. My wife’s current 403b doesn’t allow buying individual bonds or cd’s, so 18 months ago I parked a good chunk in some triple A Euro bonds which had done well for several years in other accounts. Snce they were 99% governments, I figured they were safe and would rise when central banks started cutting rates. Well, you know what happened to the exchange rate last year. The fund has been rallying a lot and I hope ot be able to bail at close to parity before the next $ squeeze and maybe get a US Intermediate to long fund to play off the falling rates.
2. Can get riskless CD’s that pay a decent rate in our other IRA’s.
3. High rates wll crash stocks and commodities back to reality and make my short bets look good. Screw the cheerleaders and those who are cheerled.
June 2nd, 2009 at 3:29 pm
The pending sale issue has been discussed extensively on the Seattle Bubble Blog. So far, there is no sign of a resulting surge in closed sales. Pendings are up but many of these are short sale offers (rejected by banks), can’t close due to financing problems, and/or are contingent upon the sale of another home.
Again: no sign of a YOY increase in closed sales outside of markets inundated with dirt-cheap foreclosures (LV, LA, Phoenix, FL, etc…)
June 2nd, 2009 at 3:29 pm
Andy: Thanks for the warning.
Here is Mish on dollar sentiment. The chart shows what should be a strong support level just below USD 78:
http://globaleconomicanalysis.blogspot.com/2009/06/speculative-bets-against-dollar-highest.html
June 2nd, 2009 at 3:30 pm
Another option for fading the currency moves is to put in a couple stink trades for tonight. (with an appropriate stop behind that) This does seem like a juncture where the $ *could* reverse course.
June 2nd, 2009 at 4:22 pm
The reasons it is good to see rising existing home sales include
1) It means people are more open to spending money
2) It means more people will soon be upgrading/fixing up their house (two homes sold on my house this month, the sheer number of trucks I’ve seen there replacing carpet, painting, etc, is amazing).
No, it doesn’t mean sound the all clear, we are still in a recession until the job number goes positive for a few months (in my opinion, at least), but it is a hopeful sign, aka green shoot.
June 2nd, 2009 at 4:29 pm
The NAHB opportunity index beats the NAR one for usability & reality by well over a country mile.
http://www.nahb.org/page.aspx/category/sectionID=135
June 2nd, 2009 at 4:54 pm
On a slightly related note, I see that the CNBC site is trying to pump up REIT’s. I suppose the theory is that now tha money is flowing freely again they can refinance all those malls and shoppers will come back.
June 2nd, 2009 at 5:14 pm
CNBC is trying to f*** the shorts, that’s what they are up to.
June 2nd, 2009 at 5:55 pm
I downloaded the March Case-Shiller seasonally adjusted raw data, and did a little analysis. It shows only yellow weeds and no green shoots. Specifically, the drop in prices for the 3 months ended March was the largest since the index began in 1987! In the first quarter prices dropped 5.8%. If that rate continues prices would drop 21.4% in 2009. That’s on top of a 19.2% drop in 2008. December 2009 prices would be at the level they were in July 2001. In the first quarter the rate of decline accelerated in 17 of the 20 municipal areas covered. The only areas that showed a slower decline were San Diego, Los Angeles, and DC (I guess the unemployment situation is less severe in the latter!). Meanwhile, the annual(ized) rate of decline in New York went from 9% in 2008 to 19% in 2009 (Boston was similar), Seattle went from 13% in 2008 to 23% in 2009. Atlanta, Detroit, Cleveland, and Chicago showed steep increases in the rates of decline. And meanwhile Las Vegas and Phoenix continued to decline at annual rates over 30%. Nationally we are headed for July 2001 price levels by the end of the year. That means that most people who bought a house in the last 8 years have lost equity (some investment!!!). And Las Vegas is headed toward values last seen eighteen years ago, in 1990!
June 5th, 2009 at 5:19 am
[...] Home Sales Up for Three Months in a RowBarry Ritholtz begs to differ and he has good reason to. Leave it to the NAR to focus on the wrong portion of their own data: As we have seen since Housing [...]