Pending home sales index drop to lowest level ever


The WSJ reported:

"The battered housing sector took another blow Tuesday,
with an industry group reporting that a gauge of pending home sales
tumbled to its lowest level ever as the credit crunch restrains

The National Association of Realtors’ index for
pending sales of previously owned homes decreased at a seasonally
adjusted annual rate of 6.5% to 85.5 in August from July’s 91.4, the
industry group said. The August index was at its lowest point since
tracking began in January 2001. The previous low was 89.8 in September

Via Lehman Brothers, here’s the chart:


Of course, this is (somehow) good news for the homebuilders:

"Shares of the major publicly traded U.S. residential builders rose for a second straight day Tuesday as investors bet that the stocks have bottomed out after months of freefall. The upswing, which saw most of the biggest firms rise 3% to 7%, came despite the latest government report showing weak pending home sales.

Flattened by the mortgage crunch, a forward-looking gauge of home sales fell further in August to its lowest level in more than six years, a real-estate trade group said Tuesday.
The pending home sales index fell 6.5% in August after dropping a revised 10.7% in July, the National Association of Realtors reported Tuesday. The index is at its lowest level since its inception in 2001.

It could be a case of investors believing the situation cannot get any worse.
Residential builder’s stocks have been battered this year as housing-market conditions have continued to deteriorate and tighter lending standards stemming from the credit crunch have made mortgages more difficult to secure."

More likely, these are still crowded shorts, and every major piece of news seems to be an opportunity to either cover or squeeze the stocks higher . . .

Recall last month, we suggested a bounce was possible due to the this business week cover:  Uh-Oh: Bonfire of the Builders.


Mortgage Problems Continue to Hamper Pending Home Sales

Pending-Home Sales Decline
October 2, 2007 11:54 a.m.

Builders rally as bleak data inspire ‘bottom’ calls
By Greg Morcroft, MarketWatch
Last Update: 11:46 AM ET Oct 2, 2007

Pending home sales down 6.5% in August
Rex Nutting
MarketWatch, 10:10 AM ET Oct 2, 2007

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What's been said:

Discussions found on the web:
  1. Unsympathetic commented on Oct 2

    Precisely what data point would cause the NAR to have a negative outlook?

    I’m just happy to see their definitions unquestionably accepted by media outlets. We all know they’re unbiased.

    Did Yun get his degree online?

  2. Pool Shark commented on Oct 2

    “Did Yun get his degree online?”

    No, he merely got his philosophy from the departing David Lereah.

  3. dukeb commented on Oct 2

    It’s a trade association. Who here would actually have the balls to have that JOB and go all doom & gloom?

  4. Joe Klein’s conscience commented on Oct 2

    So Lereah’s replacement can go Bobby McFerrin and he thinks people won’t look at him like he’s a nut when the housing market continues to tank?

  5. Estragon commented on Oct 2

    “Who here would actually have the balls to have that JOB and go all doom & gloom”

    It may be that the realtors will start throwing rocks at the NAR for NOT being gloomier. The realtors only get paid if they sell something, and resale vendors apparently haven’t got the memo that they need to drop prices to sell. The realtors would like to see higher prices, but a fast nickel is better than a slow dime.

  6. UrbanDigs commented on Oct 2

    Its a good trade for homebuilders because the stocks have already been beaten up and trader mentality is that there is more upside potential, than downside risk. If stocks price in near term, then obviously the trade in the homebuilders is on the way down, when news seems its worst, in anticipation of either:

    a) better news in near term
    b) a big upgrade (which came)
    c) weakness fully priced in
    d) short covering before the upturn begins

    I dont mean to brag (because I am short GS at 218, and FCX at 107) but after a great conversation with some ex-traders I know, who now run hedge funds, we decided the time to start buying the builders was last week! A great trade. Now why wont GS go down!

  7. lurker commented on Oct 2

    or no dime at all…

  8. UrbanDigs commented on Oct 2

    PS: forgot to add…never take full position right away so unfortunately the rally in builders came too soon. Only got a chance to buy 30% of what I wanted.

    so I meant to say, last week we decided was time to open the position, with hopes of buying more as they fell. Never did.

  9. John Forman commented on Oct 2

    I have to say I’m extremely disappointed with the inflamatory nature of the headline here. “Lowest level ever”? Come on. The index hasn’t even been around since the previous housing downturn in the early 90s, so how about using something that doesn’t sound like it includes the Great Depression.

  10. Estragon commented on Oct 2


    We aren’t there yet, but I’m warming up to the idea that builders might be closer to a real bottom than we think.

    I’m not buying notion that things are so bad they can’t get any worse. Of course they can. A bounce is likely when (as you note) the shorts move on to something else, but that bounce is likely of the dead cat variety IMO.

    Though not on your list, I’m also not buying the idea that the fed is going to ride to the rescue. Long rates matter more to housing, and it isn’t immediately clear that lower s/t rates will automatically lead to lower l/t rates.

    What does make me think homies might be a buy soon?

    1. Builders may (finally) be starting to take the lumps on built and in-progress inventory.

    2. Resale pricing isn’t dropping too much (yet) so builders have a window of opportunity to clear inventory without too much resale competition.

    3. Land inventories can be sold back into ag/commercial use at relatively reasonable prices.

    4. When commercial/industrial slows, as it almost certainly will, excess capacity will drive building costs down. Lumber pricing is already down. I’d like to see copper, steel, etc. drop too, and some evidence of stagnant rents and rising cap rates.

    5. The current nastiness will despatch some of the more marginal builders and pretty much all the fix and flippers. Seeing the cancellation of the “flip this house” and “flip that house” cable reruns would be a good sign.

    6. When demand eventually picks up, it’s likely to appear in new places and products which still-high resale inventory can’t satisfy. Initially, this might only appear in publications appealing to urban planning geeks, green freaks, AARP ads, or whatever the next thing appeals to. MSM won’t draw flies with stories on new housing at this point though.

    My guess is we’re still about a year away from this. Items #1-3 are probably in progress. I’d like to see evidence of points #4 and 5 above before dipping a toe into the group and some of #6 before really wading in.

  11. Ralph commented on Oct 2

    I have said it before I will say it again.

    I saw the same bottom calling that is happening in housing happen to over 50 stocks in the nasdaq at the end of the dot com bubble.

    So, if you all don’t mind I am taking the opposite of your positions. I predicted the current spike over a week ago and I am using this opportunity to add to my short positions. (Puts)

    I have done this 3 times in the last 9 months and have 300 – 500% returns to show for it. Nothing has changed. The fundamentals on housing are just punk.

    P.S. I do expect home sales numbers to rise in the next couple of months. There is a homes are on sale kind of mentality that has crept into the market and will probably take until end of December to play out.

    Even that won’t do anything for the home builder’s profits.

    Time will tell of course

  12. Rob Dawg commented on Oct 2

    Neutron Recession. The houses remain standing but empty. The unemployed are nowhere to be seen and the observers see nothing wrong.

    WTF is up with the last two days of homebuilder stocks? THe investment analysts call an end and it ends? Billie Ray Valentine has set the price. I thought stockes looked forward 6 months. Ohhhh, I get it now. Exactly six months from now is April Fool’s Day.

  13. UrbanDigs commented on Oct 2

    Estragen – but you can open the position, and dollar cost average it on the downside. These stocks will start pricing in the rebound a good 6 months before the media gets the reports on the rebound. We all know that. So, if you think its close, dont you think its time to nib?

    I just sold CTX but holding KBH. I didnt expect this little runup, but Ill take it to offset losses with GS going nutz.

    Which makes me wonder, so GS was short all these mortgage derivatives and made a brilliant play. Well how r those positions doing right now in this rally?

  14. Estragon commented on Oct 2

    Rob Dawg – “WTF is up with the last two days of homebuilder stocks?”

    Take a look at the outstanding short interest on these things. Even roadkill twitches for a while before the ultimate end, and with short interest like that every twitch makes some of the shorts think the beast may have life after all.

  15. Estragon commented on Oct 2


    Time to nibble? Nope. My thesis includes some of the builders going to zero, and I don’t know which one(s) yet.

  16. john commented on Oct 2

    why even post all this useless info about housing sale are the economy? 99% of the people who come on this board are bears and the last 6 weeks they’ve gotten bloodied to death and are knocked out. IF ALL THIS INFO DOESN’T AFFECT STOCK WHO CARES

  17. John commented on Oct 2

    From a recent local real estate agent ad:

    “If you [sellers] think waiting to sell until prices start rising is smart, you may want to think again … If you don’t like what your home will sell for now, you definitely won’t like it later.”

    An honest real estate agent? Too bad she annihilated that thought just a few sentences later when she wrote:

    “If you are thinking of buying, clearly you have noticed that prices aren’t going to tumble … Don’t wait too long.”

    Yes, “It’s a great time to buy or sell a home!” (TBP Friday, November 03, 2006)

  18. MarkTX commented on Oct 2


    I have to say you have REAL guts to short

    GS – “The Man”

    Anyone short BIDU?

    Anyway, buying the dip(s) and/or distressed sectors has pretty much paid off eventually since this bull market began (Iraq War).

    Picking the right homebuilder

    DHI, TOL, HOV, et al…might be the difference between the outhouse and the penthouse.

  19. Rex commented on Oct 2

    Last week at the NAR press conference for existing home sales (the only data release that is preceded by a press conference), Yun actually said: “It’s a great time to buy a home.”

    All of the NAR flacks in the room either laughed audibly or broke into smiles.

    I think they have had some kind of friendly wager: How long can Yun go before saying the dreaded words….. .

    It would have been great to see money change hands at that point…

  20. UrbanDigs commented on Oct 2

    MarkTX – yea, not too crazy about that call. I covered half of it for loss at 223, thankfully.

    May short some more if it pops again. It moved from 156 to 228 in past 2 months. Just need a drop to 215 or so.

    made some other good trades though. I feel the old me coming back a bit, which is not a good thing!

  21. Big Al commented on Oct 2

    Houses selling well here, just saw an Ad, fullpage, 100% financing, the last place in the continent to suffer it seems.

  22. UrbanDigs commented on Oct 2

    you would think that the possibility of less rate cuts than expected will at some point worry the markets? I figure there will be disappointment, so I figured to be short a little.

    How many more are left with stocks at record highs, dollar still weak, and energy/commodities still high?

  23. MarkTX commented on Oct 2

    How many more are left with stocks at record highs, dollar still weak, and energy/commodities still high?


    All the way back down to 1% in my book

    (it has happened before)

    and with complete justification by all….

  24. MarkTX commented on Oct 2


    Urbandig should be Urbandigs.

    BTW, are you plural????

  25. Kieran commented on Oct 2

    I always get a chuckle out of the rationale provided by mainstream financial news outlets such as Reuters and AP. They do a good enough job reporting the facts, but they struggle mightily to explain the reason things happen. Every reporting period for homebuilders in the last year has been followed by an increase in homebuilder stock prices, followed by a massive decline. Every reporting period Reuters and AP have a new cockamamie excuse for why it’s happening. I, for one, think it is happening because of the uptick rule, and short sellers jumping in and out.

  26. UrbanDigs commented on Oct 2

    Ill wager a bet that they dont get down to 1%!

    Yes, plural!

  27. MarkTX commented on Oct 2

    Ill wager a bet that they dont get down to 1%!

    I lost that bet the first time (2002-3)

    so I will not doubt the improbable/impossible

    futhermore, your reasonings are sound BTW, (I did read your site) on interest rates.

    have a good day

  28. Bill commented on Oct 2

    The HB’s trade pretty well according to the 5-d stochastic, which hit a really low number yesterday and turned up. This has happened for months, with lower highs and lower lows.

  29. horrifiedspectator commented on Oct 2

    “It could be a case of investors believing the situation cannot get any worse.”

    “The worst is not, so long as we can say, “This is the worst”.

    old Bill Shakespeare knew…
    King Lear, Act 2, Scene 3

    and yes, I’ve been waiting a long time to use that one.

  30. Sandy commented on Oct 2

    Lots of short covering. Margin calls today from the huge runup yesterday. Brokers closing out short positions added to this too.

  31. whipsaw commented on Oct 2

    hmmm, buying into the builders now does not strike me as a good idea, especially if you are talking about individual stocks since you incur direct bankruptcy risk then. It might work out at the ETF level if you are willing to endure 50% drawdowns for a year or better, but I’ve never been much on bottom-feeding.

    Why bother with a pure g*mble? While there aren’t any dead bang cinches out there, $NDX and $OEX both look like they will point north for the foreseeable future, so why not just buy their ETFs instead of getting tangled up with a corpse that may or may not resurrect anytime soon?

    The only advantages that us little fish have over the big sharks are:

    1. Being able to buy into or sell out of something without it moving prices, and
    2. Not having to worry about hitting a performance goal each quarter to make a living.

    Those are pretty narrow and do not include being able to comfortably pump money into a loser for an indefinite period like GS could. Everybody has their own parameters for risk, but I just don’t see the homies as a good move now, least of all if the theory is that you will “average down” (a friend of mine tried that with Ariba in the good old dotbomb days and lost around a half a mil- at least it only existed on paper to begin with).


  32. Jeff Bowman commented on Oct 2

    I wonder how many of these homes are listed because people can’t refinance? Read my article about the looming disaster in prime lending for bubble markets:
    100% Home Purchase after 04 can’t refi!

  33. whipsaw commented on Oct 2

    UrbanDigs said:
    “but you can open the position, and dollar cost average it on the downside.”

    No!!! Never do that!!! Pyramiding up is one thing, but throwing more money into something that is heading the wrong way is another entirely. There is something to be said for expanding position size in another trade if you had one that went bad once you are out of it, but continuing to piss money away on a bad idea is an extremely low expectancy tactic. Just take the hit and move on.


  34. Resonance commented on Oct 10

    No Signs Of An Economic Downturn?

    In the first question of his first presidential debate, Senator Fred Thompson was asked why a majority of Americans feel we are headed toward a recession. His response? “I think there is no reason to believe we that are headed…

  35. UrbanDigs commented on Oct 10

    ==whipsaw== – yea, GS wasn’t working so I did cover at a loss at 228 a few days ago..thankfully! It popped after the fed minutes.

    Ive played this strategy on buy side for over 10 years now, so I’ve learned to tell when to call in a bad bet, but I havent played it on the short side that much.

  36. UrbanDigs commented on Oct 10

    ==whipsaw== – yea, GS wasn’t working so I did cover at a loss at 228 a few days ago..thankfully! It popped after the fed minutes.

    Ive played this strategy on buy side for over 10 years now, so I’ve learned to tell when to call in a bad bet, but I havent played it on the short side that much.

  37. UrbanDigs commented on Oct 10

    ==whipsaw== – yea, GS wasn’t working so I did cover at a loss at 228 a few days ago..thankfully! It popped after the fed minutes.

    Ive played this strategy on buy side for over 10 years now, so I’ve learned to tell when to call in a bad bet, but I havent played it on the short side that much.

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