by Lee Adler, Wall Street Examiner
The NAR Pending Home Sales data for March is a measure of current sales as of the date of the contract. It’s the closest thing we have to a real time measure of sales activity in the existing home market. The NAR’s “Existing Home Sales” represents the closing, that is the cash settlement of the sale reflected in Pending Home Sales, usually two months later on average. Existing sales represent historical data that’s two months old, plus the lag of the release, which is another month, so the NAR’s existing home sales data is 3 months stale. The release of that data simply confirms what we already knew from the pending home sales data.
People who pretend to predict existing home sales are pulling your chain. The data is already out there. In fact, the local multiple listing services publish sales information, including contract prices, for local Realtor board members virtually in real time. Many organizations have access to real time price and volume data. They just don’t make it generally available to the public. Pundits who have access to that data and pretend to be able to predict volume and price changes are lying cheats. They have the data in front of their faces.
To the credit of Corelogic, they do publish pending sales price data within a reasonable time after they receive it, and way ahead of everyone else playing the housing data game. In a couple of days Corelogic will post the pending home sales price index from March. The February Index showed an annual gain of 10.2%. This should show up in April closed sale prices when they are first reported in early June. No doubt we’ll see similar numbers for March pending sales/May closed sales.
The widely followed Cash Shiller data to be released tomorrow adds another month to the release time, then lags the data even more by using a 3 month average. The price and volume data in that index is therefore the theoretical average as of 1.5 months prior to the named date, which for tomorrow’s release will be February. That is already two months late because it’s closed sale data, and further delayed in release by two 2 months. It’s 5 1/2 month old data when it’s released. Tomorrow’s data will represent the theoretical average contract price as of mid November 2012. It’s absolute garbage. Corelogic just bought the Case Shiller Index. Hopefully, because it’s worthless crap, they’ll just shut it down.
The pending home sales data reflects only volume, not price. It’s a good gauge of market activity. It’s an index, not an actual number, but I’ve compared it with the existing home sales data over the past 8 years in order to derive a formula to convert it to an equivalent sales number. Then I plot this on a chart on a not seasonally adjusted (NSA) basis. The NSA data is actual, not seasonally manipulated to obscure the market’s actual behavior. I compare the current level and rate of change with past levels and rates of change at the same point of the year to see just how the market is doing. The fallout rate between contracts and sales is usually around 10% but sometimes larger when the market is under more severe stress. For about the past year, the fallout rate has been near zero.
This market is getting more active, as you can see. The sales volume trend is continuing on pace and is back to 2006 levels, just off peak bubble levels.
Dividing the sales number into current inventory shows the inventory to sales ratio. It shows just how tight the market for existing homes has become. This is driving the buying panic.
Finally, here’s an overview of both sales volume and price trends by different measures. Current prices are shown in the listings price data reported by DepartmentofNumbers.com which compiles listing prices of the 55 largest US metros. While they are higher than the subsequently reported sales prices their trends have proven accurate as an indicator of market direction in real time. Listing prices as of the end of April were 6.9% above the same date last year.
Listing prices across all markets are not rising as fast as selling prices because more sales are taking place in the more desirable, active markets, whereas the listings data reflects a broader cross section of good and bad markets. The NAR’s closed sales data showed a gain of 11.6% in February, while Corelogic reported a gain of 10.2% in February pending home sales that will show up in April existing sales data. Housing inflation, like the inflation of stock and bond prices, is raging in the US thanks to the Fed’s subsidy of mortgage rates. Buyers are scrambling to outbid one another for limited inventory in good locations.
However, do not confuse the frenetic buying panic in existing housing with a housing industry recovery. Read It’s A Housing “Recovery” In Orwellian Terms – Here’s The Reality.
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