Pending Home Sales Fall – Not Up in July 2010

According to the National Association of Realtors (NAR), Pending Home Sales have risen slightly in July 2010. The unadjusted data shows YoY sales down 20%, and needing a spin master to make this data look good.   For this positive spin, here is a portion of the NAR’s press release:

The Pending Home Sales Index,* a forward-looking indicator, rose 5.2 percent to 79.4 based on contracts signed in July from a downwardly revised 75.5 in June, but remains 19.1 percent below July 2009 when it was 98.1. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, cautioned that there would be a long recovery process. “Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,” he said. “But the recovery looks to be a long process. Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers. For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”

Yun added, “Affordability could reach a generational high in the second half of this year because of rock-bottom mortgage interest rates, helped partly by the Fed’s very accommodative monetary policy. The loan underwriting standards are tighter, but home buyers can improve their chances of getting a loan by staying well within their budget.”

What is important about pending home sales data is that it is a fairly accurate predictor of existing home sales.

Since the end of the first home buyers credit, home sales have fallen. I would not rule out that the current level of home sales are not what we should be expecting in our new normal “recoveryrecession depression. Based on pending home sales levels, we should expect August 2010 home sales levels to be similar to July’s.

I believe demographics will cause home sales home sales to be depressed for many years to come.