Lawrence Yun,Chief Economist,NAR
By:Dennis Norman
Today the National Association of REALTORS(R) issued their Pending Home Sales Index Report for July showing pending sales in the U.S. were up for the sixth consecutive month,the best streak since NAR began the pending home sale index in 2001.
Today’s report is not the only recent report shedding some good light on the real estate market and point to the bottom of the market or even a recovery. Even Lawrence Yun in his quote below uses the word “recovery”but is this the beginning of a boom or another bust? By nature I am optimistic about real estate but I have serious concerns about the housing market as well as the confidence being placed in some of the recent data.
Dennis Norman
There is no doubt that houses have become much more affordable lately which,coupled with the first-time buyer tax credit,has definitely stimulated the lower end of the real estate market. Having said that,the tax credits are set to expire in a couple of months and with nearly a 10 percent unemployment rate the buyer pool is going to be decreased no doubt as we move forward. No matter how good the prices are,if you don’t have a job,or are nervous about the future of your job,you probably aren’t buying.
Many of the positive reports of late have to do with sales of existing homes being on the rise. Unfortunately when we look closer at the stats we will see a large percentage of the sales have been coming from the west and south where foreclosures have been making up about 50 percent of the sales in the past few months. In fact,of the 2.8 million homes sold through July of 2009 according to NAR,1.7 million,or over 60 percent,were in the West and South. If close to 50 percent of the sales in these markets are foreclosures that would mean roughly 850,000 sales this year have been foreclosures in the West and South alone.
Granted,foreclosures sales are always present,but in the West and South the numbers are double or triple even those numbers from just early 2008. So my point is,if you take this increased number of foreclosure sales (which thank God is not a normal thing) out of the sales numbers things look much different. Let’s just take half of the foreclosures out of the sales numbers for the West and South and the ytd home sales for through July 2009 for those two regions drops to 1,277,000. Instead of those two regions showing a combined increase in existing home sales from the year prior of 4.8 percent they would show a combined decrease of 21.0 percent…Hmm…changes the numbers somewhat,see what I mean?
Another concern of mine is the fact it has been getting more difficult over the last few months to get deals closed as a result of banks and other lenders tightening up on credit and underwriting standards as well as a result of the HVCC. Therefore,in my book,a “pending”sale is not what it once was. To illustrate this I put together a graph to show the relationship between pending sales and exisitng sales. According to NAR,“pending sales typically are finalized within a month or two of signing.”Therefore in order to draw my comparison my graph shows the relationship of actual existing homes sold during a month to the pending home sales from two months prior. The pending home sales index uses pending sales from 2001 as their benchmark of 100 so I used the existing home sales figure from June 2001 of 5.3 million as my benchmark so for existing home sales.
As you can see in the graph,the line representing existing home sales (the red line) has,up until this year,been slightly above the line representing pending home sales (the blue line). However,you can see for 2009 the existing home sales line has dropped below the pending home sales indicating to me that a lessor percentage of pending home sales are actually closing than before. This,coupled with the number of foreclosures noted above driving sales,causes me concern over the pending home sales numbers.
OK,there’s my take on the market. Now let’s hear from someone that actually gets paid to talk about the real estate market to hear what he has to say,Lawrence Yun,NAR chief economist for the National Association of REALTORS. Yun said the housing market momentum has clearly turned for the better. “The recovery is broad-based across many parts of the county. Housing affordability has been at record highs this year with the added stimulus of a first time buyer tax credit,”he said.
Below is an interview with Lawrence Yun by REALTOR(R) Magazine.
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