Lawrence Yun, Chief Economist, NAR
Today the National Association of REALTORS(R) issued their Pending Home Sales Index Report for September showing pending sales in the U.S. rose again for the eighth consecutive month – marking the longest streak since since NAR began the pending home sale index in 2001. The pending home sales index for the US rose 6.1 percent from August. Here in the Midwest the pending home sales index rose 8.1 percent from August marking the third month in a row the index in the Midwest increased.
As I have expressed previously, I’m somewhat cautious about getting too excited about these recent encouraging reports on the housing market as I feel we still have many challenges out there.
- Dennis Norman
For starters, the home-buyer tax credit, which was stimulated home sales in the past couple of months, is set to expire the end of this month. Congress may extend it and if so that will be another shot in the arm for the housing market however we are still seeing nearly record numbers of foreclosures and mortgage delinquencies which are going to continue to put downward pressure on the market. The nearly 10 percent unemployment rate isn’t helping either.
An additional concern is that the actual existing home sales is not keeping pace with the “pending” home sales reports. The NAR pending home sales index is based upon homes that have contracts on them and then comparing that number to the base year of 2001. Unfortunately due to tightening credit standards, low appraisals and employment instability, it appears a larger than normal percentage of these deals may not be closing and therefore not actually translating into a home sale. The chart I have below shows the relationship between the pending home sales index and existing home sales (both seasonally adjusted annual rates) and then the actual YTD sales in the form of an index relative to 2001 actual ytd sales. As you can see toward the end of last year and beginning of this year, actual ytd sales (green line) were exceeding both the existing home sales rate (red line) as well as pending home sales rate (blue line). In march of this year the actual YTD home sales index cross paths and then has been below the other two ever since and at the same time pending home sales has been trending upward with existing home sales struggling to keep up and falling behind the last couple of months.
So what does all this mean? While I see benefit in the trends you can see using seasonally adjusted numbers and “forward-looking” indexes, I always like to fall back on actual numbers whenever possible. With that in mind, here is where I think things stand:
- Through September 2009 there have been 3,778,000 actual sales of existing homes for the year.
- Through the same time in 2001 (the base year for the pending home sales index) there were 4,076,000 actual sales of existing homes for the year.
- Actual YTD existing home sales for 2009 is 7.3 percent below the same period of 2001, therefore is we were going to index this as NAR does pending home sales we would be at 92.7 for September, 2009.
According to NAR reports the sales pace is up substantially the last couple of months, in fact September 2009’s existing home sales rate is up about 6.5 percent from the same period of 2001. If actual sales numbers can keep up with the pending home sales, then we should have a pretty good finish for the year.
Lawrence Yun, NAR chief economist, said the momentum is understandable. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”
Below is an interview on RealtorTV with Lawrence Yun about this report.
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