The National Association of Realtors (NAR) pending home sales index rose 7.9% year-over-year suggesting a continuation of growth in existing home sales for the coming months.
Interestingly, the NAR press release took a page out of the National Federation of Independent Business (NFIB) press releases attacking government policy stating in part that “America’s monetary policy is contradictory and confusing”.
From the NAR press release:
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 4.6 percent to 84.5 in September from 88.6 in August but is 6.4 percent higher than September 2010 when it stood at 79.4. The data reflects contracts but not closings.
Lawrence Yun, NAR chief economist, said the housing market is being excessively constrained. “A combination of weak consumer confidence and continuing tight lending criteria held back home buyers, even though the private sector added nearly 2 million net new jobs in the past 12 months,” he said.
The PHSI in the Northeast declined 4.7 percent to 60.6 in September but is 4.0 percent above a year ago. In the Midwest the index dropped 6.2 percent to 71.5 in September but remains 12.3 percent higher than September 2010. Pending home sales in the South fell 5.5 percent in September to an index of 91.6 but are 5.0 percent above a year ago. In the West the index declined 2.1 percent to 105.8 in September but is 5.6 percent higher than September 2010.
“America’s monetary policy is contradictory and confusing, where some consumers with the best financial capacity and top-notch credit scores pay higher mortgage interest rates,” Yun said. “The Federal Reserve evidently has been attempting to lower mortgage rates, yet more consumers are faced with taking out jumbo loans that carry higher interest rates.”
Yun emphasized the need to reinstate higher loan limits in 42 states. “Just leaving excessive cash to sit in banks and not work into the economy is a drag on the overall recovery,” he said. “We need a comprehensive approach to address housing issues – not additional impediments.”
The National Association of Realtors (NAR) pending home sales index offers a window into predicting October existing home sales. The actual home sale might appear in the month the contract was signed (cash buyers account for 30% of home sales in September according to the NAR), or in the following two months. Econintersect evaluates by offsetting the index one month to project existing home sales. Using this index offset one month suggests existing home sales of 355,000 in October 2011. Historically, this methodology underestimates October sales by 30,000 to 50,000.
If October 2011 existing home sales come in at 355,000, it would mean a year-over-year contraction of 1% – however if home sales volumes come in at 405,000, it would be a year-over-year increase of almost 13%.
Econintersect’s methodology produced a huge miss on the August home sales which came in at 502,000 versus the forecasted 450,000 – but in September 2011, scored a direct hit with the Econintersect estimate at 440,000, and the actual sales volume at 433,000.
Please note that the NAR has been claiming significant contract cancellation percentages in past months – however, the correlations between the pending home sales index and actual data is not confirming this.
The Econintersect forecasting methodology is influenced by the speed at which closings occur. When they slow down in a particular period – this method overestimates. The number of cash buyers are speeding up the process (cash buyers analysis here). A quick cash home sale process could begin and end in the same month. On the other hand, contracts for short sales can sometimes take months to close. Interpreting the pending home sales data is complicated by weighing offsetting effects in the current abnormal market.
With the first time home buyers stimulus effected data out of the way of year-over-year comparisons, October 2011 will be the fourth month of real comparable data for existing home sales to have a true gauge of the health of real estate. The abnormal dip in sales in the months following the end of the spring 2010 home buyers’ tax incentive should be at or near an end. This dip may have produced artificially good year-over-year comparisons in recent months. Recognizing that caveat, the trendline since the end of the stimulus shows positive real estate sales growth.
As shown on the above graphic, even though existing home sales were “less good” in September 2011 – existing home sales volumes are overall improving compared to the second half of 2010 which was effected by the first time home buyers stimulus withdrawal.
Keeping things real – home sales volumes are only 75% of previous peaks.