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Tuesday, August 01, 2006

Pending Home Sales - June

NAR released its Pending Home Sales Index for June this morning. Nationally, seasonally adjusted figures show a 9.6% drop year over year. Interestingly, the May index was revised slightly upward from 113.4 to 113.5.

By region (seasonally adjusted):

US: -9.6% compared to June, 2005; + 0.4% compared to May.
Northeast: -11.6% compared to June 2005; -6.3% compared to May.
Midwest: -11.9% compared to June 2005; +1.9% compared to May.
South: -4.8% compared to June 2005; + 2.5% compared to May.
West: -14.2% compared to June 2005; no change compared to May.

Last month the figures looked like this:
US: -10.1% compared to May, 2005; + 1.3% compared to April.
Northeast: -7.8% compared to May, 2005; -0.6 compared to April.
Midwest: -13.6% compared to May, 2005; +0.6 compared to April.
South: -7.3% compared to May, 2005; -1.7% compared to April.
West: -12.9% compared to May, 2005; +9.9% compared to April.

I can't see this as any positive trend. I'm surprised about the slump in the Northeast. What is going on seems to be quite national; the south looks by far the most stable. However, I don't see the huge rise in cancellations (contingencies and no-shows, largely because the first house hasn't sold) that some builders and would-be sellers are citing (maybe that will show up next month), and I remain confused about condo inventory. NAR claims that these figures are relatively positive:
Pending home sales – a leading indicator for the housing sector – have risen for the last two months, according to the National Association of Realtors®.
The index is based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.
David Lereah, NAR’s chief economist, said the small rise in the index is good news, indicating that the trend is stabilizing. “Once again, we have various housing indicators moving in different directions, which itself is an indicator of a market in transition,” he said. “The housing market is striving for balance – a process that will take several months. A quieting in the movement of indicators should restore confidence to home buyers who’ve been on the sidelines, waiting for the right time to get into the market, and now is the best time we’ve seen since the 1990s in terms of housing choices and flexible terms.”
Yeees. As always at NAR, it's a great time to buy. I think they really should quit drinking quite so much of the happy juice, because talking about the 1990s in real estate does not put all that many people in the buying mood.
These are very marginal month to month gains and very significant year-over-year losses, and June and July are the telling months. If you look at the release and compare June, 2005 seasonally adjusteds to the 2005 overalls, you'll see that they should be at or above the yearly overalls. Now look at the actual figures for June 2006, and imagine what happens if the same ratio holds true for 2006. We're not going to clear out excess inventory this way, which means that the market is hardly heading toward a "balance".

This spring I was saying we would see a late spring-summer surge in buying (as deals began to motivate buyers who sat out last year), and I'm disappointed at what we're seeing, if this does represent the surge. I do believe we are seeing the surge - people buying who had sat out last year, and that makes me think that this fall might look very bad indeed, because May/June/July is when those folks would probably buy if they buy at all this year.
Where's new demand going to come from? Most of the investors are not buying in most of the US. Demographically speaking, the boomers are mostly going to begin to sell and consolidate over the next four years. Affordability continues to be a real problem for first-time homebuyers in much of the US. Basically it's flatline demand except for pent-up demand and demographic shifts from one region to another. Our population growth is coming in low-income, low-earning segments of the population; real wages continue to drop for the median household; historically speaking, home ownership is at a highpoint; historically speaking, affordability is at a lowpoint; underwriting standards are going to tighten....

We know we have a supply bounce coming from the funny-money deals and those poor realtors who suddenly, inexplicably, found themselves the proud owners of 20 homes or so, not to mention the retirees with three or four. I don't see this market coming into balance - I see it as veering further and further out of balance. I had no delusions that 5-10% price reductions were suddenly going to bring another 10-20% of real buyers out of the woodworks in the hot markets, but I didn't expect to see that slump in the NE, either, which means that this is more broadly based.

We'll know by October at the latest. I think the still-solvent investors have shifted to other areas in the south, which accounts for the stronger sales figures there. It's true that parts of Florida are dead, but parts of GA have been quite strong, and I know that big hunks of Texas have been more than healthy. Mish posted an interesting summary of the year so far from an Atlanta, GA realtor, which started with ebullient optimism in January and ended in deep gloom in mid July. In three months, the picture changed from very strong to very weak for that realtor. That's what tipover looks like, and it is caused by things like people having their old homes on the market for months longer than they expected and a general change in buyer psychology. The wave travels rather quickly across the country.

So far, my predictions this year have all erred on the optimistic side when compared to reality. Here's hoping that trend does not continue.


"Yeees. As always at NAR, it's a great time to buy."

Hey, wait a minute...I thought it was a "great time to sell!"

I have that flyer right here somewhere....

"...the best time we’ve seen since the 1990s in terms of housing choices and flexible terms..."

Do you mean the 1990s when I was upside down due to a 60+% RE price crash and bailing out the Titanic with a teaspoon?

Or the 1990s when Magic: the Gathering cards were being flipped/scalped for $1000 a Black Lotus? After all, Magic Card prices had nowhere to go but UP UP UP UP UP! (Don't Miss Out On The Big Investment $$$$!)

The Headless Unicorn Guy
Bilgeman - Let's put it this way - it's a great time to go see your realtor!

Headless, that was my reaction. The 90's were kind of legendary in real estate in many areas, and the memory doesn't bring a smile to many persons' faces. That was the least motivational comment I can imagine.

As for flexible terms, what does that mean? I realize that the sellers are unhappy, because many of them are having to come down on price. But this isn't really a buyer's market for many people either. Imagine a first-time buyer trying to scrape up a downpayment for a $399,000 starter townhouse in some of these metro areas, and it's clear that they will need "flexible terms". They'll need to be able to finance almost all of it.

Would you buy into this market for the first time in your area? I sure wouldn't.
Would you buy into this market for the first time in your area?

I keep telling everybody to wait 2-3 years for the Big Crash and pick up a cheap repo.

One blog (name I don't remember) was commenting about the Nineties as "the era of walk-aways -- keys left on the counter and moving van speeding away in dark of night". Then came one reminiscing about "walk-away strip-down parties" where the bailing-out homedebtor would strip everything out of the property (including ripping the electrical wiring out of the walls) for salvage $$$.

Besides "Housing Bubble Blog", check out "Housing Doom" based out of Phoenix.

"Flexible Terms" is the latest name for adjustable-rate "creative financing", aka "Suicide Loans" or "Suicide Mortgages". (They're called that for a reason.)

The Headless Unicorn Guy
The main thing we are seeing is that the house "flippers" can't flip at higher prices. Thing about speculaltion is that the speculators always insist that they are "investing." I think you'll find that everyone who bought from 4.0 up will be the ones with the problems.
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