Pending Sales: Another Indication of Cooling California Boom

Like closed sales which were reported last week, pending real estate sales in California dropped in August while distressed home sales were down to levels last seen six years ago the California Association of Realtors® (C.A.R.) said today.  C.A.R. said rising mortgage rates were responsible for the drop in the Pending Home Sales Index (PHSI) which fell 5 percent in August.

The Index was at 114 in July.  In August it fell to 108.3 which was also 8.9 percent below the index recorded in August 2012.  Pending sales are a forward looking indicator of future home sales activity based on signed home purchase contracts.   Last week C.A.R. said closed sales in August had fallen to a seasonally adjusted annual rate of 434,700 units, a 2 percent decrease from July.  

"Rising interest rates over the past several months at the specter of a tapering of the Fed's stimulus program sent buyers to the sidelines in August," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.  "However, the Fed's decision last week to postpone the  pullback should lead to lower interest rates, which bodes well for prospective buyers." 

Non-distressed or equity property sales have risen on a month-to-month basis for 18 of the last 19 months C.A.R. said and now account for more than four in five sales, the highest share since November 2007.  Equity sales rose from 82.9 percent of all residential sales in July to 84.7 percent in August.  One year earlier equity sales made up 62 percent of the total.

Twenty-five of the 38 counties reporting to C.A.R. reported distressed sales down in August and some of the largest counties - San Diego, San Mateo, Alameda, Orange, and others - reported distressed sales in the single digits. 

Short sales fell to 10.2 percent of all sales, the lowest point since February 2009 and were less than half what they were in August 2012.  C.A.R. said the continuing decline in short sales indicates more previously underwater homes are now selling at a high enough price to cover the mortgage.

The share of REO sales also continued to fall and was in single-digits for the fifth straight month.  Bank owned property accounted for 4.7 percent of sales in August compared to 5 percent in July and 14.7 percent in August 2012. 

Housing inventory levels improved further in August but remained in short supply.  The Unsold Inventory Index for equity sales inched up from 3 months in July to 3.1 months in August.  The supply of REOs edged up from 2.1 months in July to 2.3 months in August, and the supply of short sales rose from 2.5 months in July to 2.9 months in August.