Pending Home Sales Plummet 24.2%

The housing market continues to spiral downward, with softness in sales and prices. As of now, the worst
housing slump in 25 years is likely to continue this year, and quite likely beyond that. (see also Housing Futures Fall Through the Roof),

The National Association of Realtors’ index of signed purchase
agreements fell 1.5% to 85.9 for December 2007. The drop in pending sales in November 2007 was revised downwards to 3% (from -2.6%)

Of course, it wouldn’t be any fun if the Housing data didn’t come with some hallucinogenic ramblings from the NAR, and the group did not disappoint this month.

Let’s start our fisking with the WTF!?! headline: "Existing-Home Sales to Hold in Narrow Range, then Begin Upward Trend."

Well, if you think a 24% drop is a narrow range, then I guess you can make so absurd a claim. Here’s the rest of their wild eyed commentary:

"A continuation of soft market conditions is forecast for existing-home sales in the months ahead, with improvement expected by the second half of this year if loan limits are increased, according to the latest forecast by the National Association of Realtors.

Lawrence Yun, NAR chief economist, said sales activity is expected to remain soft through the first half of the year despite a generational low in mortgage interest rates.  “Household formation was only half of what it should have been last year given the demographics of a growing population and sustained job growth, so there clearly is a pent-up demand from buyers who are on the sidelines,” he said.

“Existing-home sales have moved narrowly since last September, but when the full impact of higher loan limits for conventional mortgages begins to impact the market there is likely to be a notable rise in home sales and prices.  If higher limits are enacted very quickly, we’ll see a faster and more meaningful recovery by expanding safe, affordable financing in high-cost areas – that, in turn, would help to stimulate overall economic activity."

And as we have mentioned repeatedly in the past, its not the monthly data, according to NAR’s own
methodology, but the year-over-year data that is most important to methodology of the PHSI:

"In developing the model
for the index, it was demonstrated that the level of monthly
sales-contract activity from 2001 through 2004 parallels the level of
closed existing-home sales in the following two months. There is a
closer relationship between annual index changes (from the same month a
year earlier) and year-ago changes in sales performance than with
month-to-month comparisons

’nuff said. Narrow range my ass . . .



No, Pending Home Sales Index Did Not Rise

Pending Home Sales Index, NAR Housing Market "Bottoms"

Existing-Home Sales to Hold in Narrow Range, then Begin Upward Trend
NAR, February 07, 2008

Pending Home Resales in U.S. Fell 1.5% in December
Courtney Schlisserman
Bloomberg, Feb. 7 2008

Outlook for Sales of Existing Homes Remains Grim
Northern Trust , February 7, 2008

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What's been said:

Discussions found on the web:
  1. Joe Klein’s conscience commented on Feb 7

    The NAR. Always in search of that pony that never comes(or won’t anytime soon).

  2. Peter B commented on Feb 7

    Dec Pending Home Sales, a measure of contract signings of existing homes, fell 1.5% vs expectations of a drop of 1%. Nov was revised to a decline of 3% from 2.6%.

    Contracts signed fell in the Northeast, South and West while rising in the Midwest. These #s are month to month and are seasonally adjusted. On an unadjusted y/o/y change, Pending Home Sales were down 23.9% with double digit declines in all 4 regions.

    As Toll Brothers said yesterday, adding to the reluctance to buy a home is the difficulty in selling one’s existing home.

  3. techy2468 commented on Feb 7

    i am waiting for cinefoz analysis on this.

    cinefoz: it may appear that i am trying to pick on you, but its not so, we dont want to miss the train if the market has really bottomed, but we also want to have a clear confirmation backed by some good data….so lets keep debating till we really reach a point where bottom looks possible.

  4. Johnny Vee commented on Feb 7

    Let’s face it, the Fed is lowering rates in an effort to stablize, or re-inflate, the home prices. It wont be long before a borrower can get an interest rate in the 4-5% range. When that happens, with further price declines, buying a home will make good financial sense versus renting. Please note that in the S.F. bay area, rents increased between 5-10%.

  5. David commented on Feb 7

    It’s funny. In my neighborhood (SF Bay Area) houses are selling just fine. The ones that are…drum roll….PRICED CORRECTLY!

    What is “priced correctly” you may ask? Well, those houses that are priced right relative to rents (about 20X) or are essentially priced at 2002 levels, give or take. Not surprisingly, the houses that most commonly are priced in this range are bank-owned.

  6. cinefoz commented on Feb 7

    I’m not backward looking, unless history has a direct or inverse effect on the present and future. Nobody should be surprised that housing was bad in 2007 or in December. It will probably be off in January and maybe this month. Wait until April, May, and June and then challenge me.

  7. cinefoz commented on Feb 7

    Re the stock market …

    B.R., what ever happened to your double bottom observation? Several months ago, you quoted a study that was quite predictive. Time will tell, but could this be one of those?

  8. Peter Davis commented on Feb 7

    Sorry, cinefoz, I don’t mean to pile on, but April, May and June constitute the bulk of the ARM resets. And given that most of these resets will take place in, quite possibly, the worst types of mortgages ever written (low-doc, no-doc, liars, ninjas, etc.), I wouldn’t qualify my level of enthusiasm for a housing bottom as “confident”.

    As for our good buddy, Lawrence Yun, the aforementioned chief economist of the NAR, he has a certain Baghdad Bob-esque quality to him, don’t you think?

  9. ken h commented on Feb 7


    Are you selling speed balls to Johnny Vee?

    Johnny, SF 3rd QT stats:

    (these are all based on 20% down 30 year fixed)

    Percentage of income to mortgage: 60%!! wholly bat shit!

    mortgage/rent: 1.86

    Price/income: 9.5

    Price/rent: 366

    It’s not an issue of interest rates, It’s affordability combined with MUCH tighter lending standards.

    There is the other issue of supply as well.

  10. ken h commented on Feb 7

    I’m sorry JV,

    I noticed you didn’t put a time frame like Cinefoz.

    I do agree housing will return. It’s just the timing.

    Cinefoz This Spring.


    The NAR reminds me of the Janitor one year we went to Disney. We got there Spring Break and everybody arrives at the same time. All us fathers where unloading a long trips deposit. The stench hit you in the hallway to the restroom. It was unbeleivable. You should have heard the laughter as the janitor tried to spray some pine fresh.

    Good Luck with that!

  11. techy commented on Feb 7


    i am not a believer, still i pray that you are right, that economy will start showing signs of recovery in the next 3-4 months.

    but the data is not pointing to that picture (retails sales, housing, credit market, job market, consumer spending etc..)

    need to get busy on planning, how to survive a lay off or which are recession proof industries (energy and utilties)

  12. W T F commented on Feb 7

    cinefoz wrote on Feb 7, 2008 12:31:11 PM:

    Nobody should be surprised that housing was bad in 2007 or in December. It will probably be off in January and maybe this month. Wait until April, May, and June and then challenge me.

    Improvement in which metrics should we be looking for in the 2nd quarter? Declining inventories of existing homes? Declining new housing permits or starts? An upturn in home price selling prices and unit sales? Will these metrics identify the bottom, a slowdown in decline, or the start of the upturn?

    I’m assume that when you say April, May, and June that you are talking about the 2nd quarter of 2008, right?

  13. miguel c commented on Feb 7

    How come ? Definetly, everything is about money. The whole thing need a Re-Boot like a computer sometimes. Will be nice to try Re-Boot the whole thing and give it a shot see what happen then. Remember numbers-electronics-do the math start from the scracth. It’s always darker before sunlite…
    Happy New Year All…Yeaaappyyy……….!

  14. bonghiteric commented on Feb 7

    Cinefoz wrote:

    “…unless history has a direct or inverse effect on the present and future”

    All this Ben Steinery in the housing markets is spawning some awesome “Fozisms”

  15. A. Melmotte commented on Feb 7

    @cinefoz;techy;Peter: When things start to show signs of a durable long-erm improvement it will be evident. Until then, what’s the use in picking bottoms??

    @miguel; Nonsense. It’s always darkest just before it goes completely black!

    @Lawrence Loon & the NAR; what’re you smoking? Can I have some? F’in shills!

  16. Justin commented on Feb 7

    This “mother of a dog” (I believe her name is Erin) on CNBC, wants the glass to be half-full so bad that she’s marching out any company that fits the bill. How reminicent this is of the dot-com era – buy on the dips mentality. I just wonder if there will be any repercussions for their behavior, like there was back then?

  17. techy commented on Feb 7

    yahoo says today’s bounce is due to bargain hunting….people think stocks are very cheap…yummy.

    some one will say its the hand of PPT :)

    what say ye?

  18. Don commented on Feb 7

    Housing will hit bottom in 2009, and by 2012, it will be back at a new, but lower, peak.

    I don’t know why, but it seems to be a seven-year thing. The present housing market mania started about 7 years ago, after the last one bottomed in mid-2000. Which had itself started about seven years prior, reaching a peak in about 1998…follow it on back–it seems peak to trough in housing lasts about seven years, but I’m not specifically talking about prices–really rather about transactions–which is/are actually the drivers for profitability in the industry. The mortgage company, builders, realtors, etc., don’t care which way the prices go, as long as product is changing hands. Unfortunately the market got a bit ahead of itself price-wise in the last cycle, and prices went up so much that they surely are having a detrimental impact on the number of transactions. Unless you count foreclosures.

    The mid- aughts were the fat years of this cycle. Now we’re (the mortgage/housing market players–of which I’m one) about a year into the lean part of the cycle, which should total about half the cycle, i.e., ’til about late 2009, early 2010. Unless, of course, it doesn’t. Past performance is not a guarantee of future results.

  19. Justin commented on Feb 7

    Techy, its Bob, down on the floor of the nyse, saying that there are tons of traders waiting with boat loads of cash wanting to get into the market. They are cheerleading (cnbc) so much without any sound economic reasons…it’s sick’en’in! The reason they have so much cash is because they see no place to but it that makes sense.

  20. ken h commented on Feb 7

    Do you study the fundamentals and techs of stocks you like Techy? What difference to large market swings, volatility, and fed moves make if you know your companies.

    I agree with A. Melmotte, rather not catch a falling knife and buy on the way up.

    Here is another turd for your Spring housing rally CineFoz.

  21. Gary commented on Feb 7

    My area did not bubble and it’s not crashing (up/down sure, but not bubble/crash; it’s holding up pretty well). At one time I wanted to move to what is now a bubble area and buy without a mortgage, but that’s not a great option now and I like where I am.

    So plan b is hope the Fed continues to lower rates to avoid deflation from the housing and credit bubbles; refinance my 6.125 fixed to under 5.0 fixed; add a couple hundred to the payments to save a lot of interest; sell in 4-5 years or continue to pay back with cheap dollars from the inflation caused by the Fed’s current actions. But of course, that’s a lot of if’s and it could all change tomorrow.

    I don’t see the overall market turning in the spring, maybe 2011/12. And ya’all better hope that my generation (boomers) doesn’t “get religion” and try to seriously downsize their homes and lifestyle and get a lot less materialistic. Unfortunately I’m beginning to see that trend; I just hope I can sell to some nice growing Gen x family.

  22. Justin commented on Feb 7

    question about what happens long term to this economy – long term means 20 years, etc:

    People get more skilled jobs, which creates the need for less labor, but the U.S. population is increasing, which means a bigger labor pool, with fewer jobs available.

    So, (like I just heard one politician say), how is educating more people to be higher skilled going to solve the problem?

    What am I missing here…anyone of you economic geniuses please answer.

  23. techy commented on Feb 7

    Ken h.

    my reasoning is most stocks will go on sale and maybe they will stay there for a long time if we end up in a long recession.
    (who will like to own a non dividend paying stock during a recession, with shrinking profits)
    so what difference will it make if i am investing in a good company.

    unless i am investing in a company with no obvious risk of going under, and they give a dividend nice enough to beat inflation….and their profits will not vanish during a recession.

    if anyone knows such stock please mention.

  24. kk commented on Feb 7

    One of the variables I am looking at to determine valuation on real estate in my area is cost per square foot. In my neighborhood, at the peak, homes were selling at approximately $325 per square ft. Currently, homes are listed at $250 per ft, with the only sales taking place on homes that are of superior quality. In order for the market to start moving again, my guess is that prices are going to have to come down to $175-200 per foot level, which takes into account the cost of replacement of the structure, plus a reasonable valuation for the dirt. I especially feel bad for those that tapped their home equity for the big remodel in hopes for the flip. Kiss that equity goodbye.

    On the outskirts of town, where the land supply land is infinite, we might be looking at years for a bottom, unless some type of governmental or institutional liquidation lakes place.

  25. Don commented on Feb 7

    If anyone wants some Ben Steinery about the RE market, Yun’s economic commentary (on the NAR site) about “pent-up demand” and the “virtuous cycle” blah, blah, blah are just too good to pass up:

    I especially like his “pent-up demand”–but I thought the Commerce Dept said that there are 2.8 m unoccupied homes right now? How did the demand get “pent-up?”

  26. Gary commented on Feb 7

    “no obvious risk of going under, and they give a dividend nice enough to beat inflation….and their profits will not vanish during a recession.”

    There are plenty of them. Start your search in the DOW 30.

  27. kk commented on Feb 7

    Techy, I have always found that in markets like today, it is good to take a step back and get some longer term perspective from successful investors. I would encourage you to take a look at Berkshire Hathaway’s website to review Buffett’s annual shareholder letters, Marty Whitman’s letters at Third Avenue Value, and Longleaf Partners commentary. It is a good exercise to review how these managers allocate capital and make the case for their appraisal valuations of the companies in their portfolios. The common thread between all three is buying good value based on sound fundamental analysis, and holding for the long term.

  28. AGG commented on Feb 7

    So this is what we’ve come to: the importance given to self-interest overlooks the fact that the self-interested individual would logically feel justified in being dishonest, cheating others, and writing loopholes in the law that the biggest rats can squirm through. Embracing short-term profits by overlooking pollution, resource depletion, and global warming also appeals to a narrow sense of self-interest.
    NOBODY is swallowing the heads I win tails you lose predatory capitalism except the very few on top that want to sell it to us.

  29. Stuart commented on Feb 7

    The NAR should hire Baghdad Bob.

    I find it beyond sickening that the NAR still gathers attention and airtime. Don’t know which is more pathetic, the NAR or the mindless sheeple MSM that pays homage to their comments.

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