The pending home sales report was a shock to economists this morning. The Econoday Consensus estimate for existing home sales was a rise of 0.5 percent. Instead, the index sank 2.5 percent, well outside the entire range of estimates from 0.4 percent to 1.5 percent.
Pending sales of existing homes slowed in January, down an unexpected 2.5 percent to an index level of 106.0 in a decline offset but only in part by an 8-tenths upward revision to December to plus 0.9 percent. Econoday forecasters were expecting a much better reading, at a consensus plus 0.5 percent for January sales. Sales in the month fell in three of the four regions with only the South in the plus column. Year-on-year, pending sales are up only 1.4 percent. Today’s report is yet another disappointment for a sector that, despite high employment and low mortgage rates, is getting off to a flat start for 2016.
Boosted by gains in mortgage applications for home purchases, pending home sales are expected to climb 0.5 percent in January, in turn pointing to solid growth for final sales of existing homes. However up-and-down the sector has been, housing still appears to be a positive for the nation’s economy.
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. Specifically, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
Once again economists were ridiculously overoptimistic. Not a single economist predicted a decline.
Mike “Mish” Shedlock