Drop in Pending Homes Sales Still Matters

The National Association of Realtors is out with yet one more dangerous piece of news for the housing sector, news which leaves many wondering if housing will ever return.  Pending home sales declined in July in all regions except for the West.  It may sound like good news that the sales are higher than year-ago levels, but that is because last year’s readings were immediately in the aftermath of the homebuyer tax credit expiration that caused a deep drop in activity after expiration.

The Pending Home Sales Index fell by 1.3% to 89.7 in July, down from 90.9 in June but up from 78.4 a year ago. Where this news gets worse is that the reading is based upon contracts rather than closings.  Many contracts just don’t get closed upon these days for a myriad of reasons.

What is interesting, or maybe self-serving, is that the association believes that the housing market can “easily move into a healthy expansion if mortgage underwriting standards return to normalcy.”  Other key issues brought up were the proper (or improper) comparables used in appraisal valuations, as well as streamlining the short sales process.”  The NAR also noted that the factors for rising sales are developing: rising rents, record high affordability conditions, and investors buying real estate (as a future inflation hedge).

The reading of 100 is the baseline for growth or contraction.  Regional data is as follows:

• Northeast fell 2.0 percent to 67.5 in July but is 9.7 percent above July 2010.
• Midwest fell 0.8 percent to 79.1 in July but is 18.8 percent above a year ago.
• South fell 4.8 percent to an index of 94.4 but are 9.5 percent higher than July 2010.
• West rose 3.6 percent to 110.8 in July and is 20.6 percent above a year ago.

It is hard to imagine growth in the West, but that is also off of severe comparables as well.  As you would expect in any markets, the hardest hit are often the ones which have the strongest bounce.

It is far too soon to look at the news that housing is really on the mend yet.  The NAR has a vested interest in being positive as you would of course expect.

JON C. OGG