January Existing Home Sales Outlook: Terrible, Based on December Pending Home Sales

Analysis by Econintersect points to a third year of terrible home sales, at least at the start, based on the pending home sales data released by the National Association of Realtors.  The NAR, continuing to use innovative techniques, has implied the opposite.

Other articles posted today have echoed the NAR misrepresentations with headlines such as “U.S. Pending Home Sales Jump More than Expected in December“.  Wow!  The jump is actually a 2% increase from November (seasonally adjusted) and the YoY numbers are down 4.2%.  As Econintersect analysis will show below, the outlook for January existing home sales is near an all-time low.  Some jump.   The headlines for the December 2010 pending home sales post:

Pending home sales improved further in December, marking the fifth gain in the past six months, according to the National Association of Realtors®

The Pending Home Sales Index,* a forward-looking indicator, increased 2.0 percent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2 percent below the 97.8 mark in December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, credits good affordability conditions and economic improvement. “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions. Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favorable environment for buyers with good credit,” he said.

“In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory,” Yun said. “The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”

Econintersect uses unadjusted data in most of its analysis – and that is the case for NAR produced data here.  The graph below uses a one month offset on the pending home sales data, and graphs it against the unadjusted NAR home sales data.

The above graph shows the YoY trend lines between January 2009, January 2010, and Econintersect’s projected 260,000 existing home sales for January 2011.

Last month, the forecast of 326,000 was significantly missed – and came in at 404,000.  In December 2009, existing home sales were 413,000 – and so December 2010 still saw a YoY decline.  This lack of correlation to the pending sales index was likely due to year end crunch for tax reasons.  However, January has had recently a good correlation between pending and existing home sales.

The unadjusted actual home sales volumes in January 2009 was 257,000,  and in January 2010 – it was 275,000.  Econintersect’s January 2011 estimate is 260,000.

While it is true that existing home sales are not in a free fall, there is no upward trend lines at this time.  At this point, any improvements seen by the NAR is only wishful thinking.

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The Great Debate ©:  Will Housing be a Drag on the Economy in 2011? – Part 1 by John Lounsbury

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