Pending Home Sales experience the morning after

Nov Pending Home Sales, a measure of contract signings of existing homes, fell 16% m/o/m, dramatically weaker than expectations of a drop of 2%. Hangover is the only way to explain as we had a run up over the prior few months due to the home buying tax credit whose existence past Nov 30th was uncertain at the time. There were sharp drops in the Northeast, Midwest and South but all after large gains in the prior 3 months. The West fell after a drop in Oct but saw sharp gains July thru Sept. Y/o/Y, contract signings are up 19.3% but the comparisons are very easy. Bottom line, the housing market has been completely distorted over the past 6 months due to the Fed’s suppression of mortgage rates and the home buying tax credit, thus while the trends have been healthy in terms of eating into inventory, the true supply/demand equilibrium won’t be discovered until next summer when the government steroid shots wear off.

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