Pending Home Sales Not Indicative Housing Recovery Is Underway

The National Association of Realtors (NAR) pending home sales data for February 2011 shows little improvement in the pace of home sales.  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 NAR seasonally adjusts their headline data.  Econintersect uses their raw data which shows pending home sales are down 9.3% YoY.

Last year, pending home sales were under the influence of the first home buyers stimulus program – and it should not be surprising that the February 2011 pending home sales index is lower.  The index however – is slightly higher then the levels seen in 2009.   The data does not positively confirm that home sales are getting better.

Based on Econintersect’s analysis, Existing home sales in March 2011 should come in at 345,000 – a 9% decline over 201o.  Using this methodology, Econintersect projected February 2011 home sales to be 305,000 (analysis here) – and the actual sales came in at 293,000 (analysis here).

This index is influenced by the speed at which closings occur.  When they slow down in a particular period – the index 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.

The NAR in their press release is very optimistic on the real estate market.

Pending home sales increased in February but with notable regional variations, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator, rose 2.1 percent to 90.8, based on contracts signed in February, from 88.9 in January. The index is 8.2 percent below 98.9 recorded in February 2010. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, says it’s important to look at the broader trend. “Month-to-month movements can be instructive, but in this uneven recovery it’s important to look at the longer term performance,” he said. “Pending home sales have trended up very nicely since bottoming out last June, even with periodic monthly declines. Contract activity is now 20 percent above the low point immediately following expiration of the home buyer tax credit.”

Yun notes there could have been some weather impact in the February data. “All of the regions saw gains except for the Northeast, where unusually bad winter weather may have curtailed some shopping and contract activity.”

“We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery, job creation and excellent affordability conditions providing confidence to buyers who’ve been on the sidelines,” Yun said.

Remember that the NAR using some sort of seasonal adjustment methodology which always shows real estate is improving.  There is not a chance in hell that current contract activity is up 20% from the crisis bottom looking at any YoY period.

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