Pending Home Sales Suggest No Quick Recovery for Housing Market
Markets were expecting the housing market to continue struggling in the fourth quarter, but the November's decline in pending home sales was much worse than anticipated.
Pending home sales, which predict actual home sales in the upcoming month, fell by 4.0% in November against expectations for a 1.0% decline, the National Association of Realtors reported. The index has now fallen three months in a row, pushing the index down to 82.3, nearly 10% below levels recorded in November 2007.
Paul Ashworth, senior economist at Capital Economics, said sales were low in November but that he is hopeful falling interest rates will turn the market around in December. "Since November, mortgage interest rates have fallen sharply, hitting a 30-year low and, as a result, mortgage applications have tripled," he said.
Ashworth said much of the new applications reflect refinancing rather than applications for home purchase, but he said the drop in mortgage rates should help to stem the pace of decline even if it doesn't prompt an actual rebound.
North American economist Abiel Reinhart from JPMorgan questioned the reliability of the pending home sales index, but concluded that November's marked decline should narrow the disparity.
"While existing home sales had plunged in November, the pending home sales index had not signalled nearly such a large decline," he said. "After the release of the latest pending index, however, these two measures of home sales are once again well-aligned."
The report also revised down October's pending sales to -4.2%. In the initial release for October, sales had only fallen by 0.7% but existing sales in November subsequently fell by 8.6%, a decline that was completely unexpected by anyone relying on the pending sales index.
In the accompanying press release, NAR chief economist Lawrence Yun continued to push for government assistance, saying, "December's housing market activity could be comparably lower due to ongoing problems in the economy, so a real estate-focused stimulus plan is urgently needed."
Overall, the worse-than-expected figure suggests December's existing home sales index, to be released Jan. 26, will continue its downward spiral.
The pending homes index looks at home sales that have been signed but not finalized, a process that takes another month or two. The value of the index lies in its ability to forecast existing home sales, which represent eight-tenths of the housing market.
By Patrick McGee and edited by Stephen Huebl
©CEP News Ltd. 2009