Pending Home Sales, Deconstructed

Sales of existing homes are set to increase, according to a National Association of Realtors report. The Wall Street Journal has more:

The National Association of Realtors’ index for pending sales of previously owned homes increased by 1.0% to 96.6 in December from a revised 95.6 in November, the industry group said Tuesday.

The NAR index is based on pending sales of existing homes, including single-family homes and condominiums. A home sale is pending when the contract has been signed but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.

The small increase in the gauge was reported a week after the Realtors said sales of previously owned homes fell 16.7% in December. The plunge, following strong increases fed by a government subsidy for buyers, suggested a fragility of the housing sector.

The tax credit helped sales in 2009, as did low prices and mortgage rates. The market is fighting high unemployment and difficulty getting loans. In its monthly forecast on the industry, the NAR projected existing-home sales of 5.66 million this year and 5.70 million in 2011. That compares with 5.19 million in 2009.

When the National Association of Realtors says home sales are looking better (go buy one, guys!), I grow wary. Zero Hedge has a few remarks of its own on the real estate sector:

A bearish report by CIBC captures precisely the highly unstable system that U.S. housing has become, and deconstructs it along the five key axes of weakness which while individually may be controllable to a degree, combined represent a recipe for disaster. CIBC’s main sources of concern arise from:


1. Short-lived remedies; used by the administration to prevent further price deterioration (tax-credits);

2. Shadow Inventory; in reality when accounting for the surging shadow inventory which very few dare talk about, the total number of available units double to over 8 million, representing a record high 16 months of supply.

3. Strategic defaults; the amount of households with negative equity is roughly 10 million or about 20%, in 2009 25% of all foreclosures were strategic; as populist anger against banks accelerates look for strategic defaulits to keep rising

4. Quantitative Easing expiring; This needs no introduction: the sole reason why mortgage rates have been as low as they have, has been due to the Fed’s constant manpulation of the MBS market via the $1.4 trillion MBS/Agency QE purchase program. With this program set to expire in 2 months, rates are set to explode.

5. House Prices are already entering a double dip; Previously we discussed the Case Shiller NSA home price index number which indicated that a double dip in prices has already commenced. A positive feedback loop will only lead to further deterioration here

I’d like to see the National Association of Realtors argue with that, or at least put it in context with their optimistic outlook.