Fresh on the heels of a glowing existing homes sales report comes news of an unexpected plunge in pending home sales. Economists in the Econoday survey expected a 1.1% increase. Instead, the pending home sales index plunged 2.8%.
Just when existing home sales seemed to be showing lift the pending home sales index, which tracks initial contract signings, is down 2.8 percent in the January report. This points to weakness for final resales in February and March.
The West is the culprit in January’s data, with contract signings down 9.8 percent in the month for year-on-year contraction of 0.4 percent. The Midwest is also weak, down 5.0 percent in the month for 3.8 percent on-year contraction. The South and the West both show no better than low single digit monthly and yearly gains.
Adding to the bad news is a sharp downward revision to the December index, now at plus 0.8 percent vs an initial 1.6 percent. This hints at less strength for February existing home sales, sales that proved strong in last week’s January report which however is now a memory. This setback for resales follows last week’s sharp downward revision for December new home sales and together they point to a housing sector where growth is suddenly struggling.
NAR Blames Tight Supply
Mortgage News Daily reports Highest Home-Buying Demand in Years Stifled by Tight Inventory.
Tight inventories are again being blamed for a downturn in home sales, this time January’s ones. The National Association of Realtor’s® (NAR’s) Pending Home Sale Index (PHSI) declined by 2.8 percent from December, reaching the lowest level in a year. The PHSI is a forward-looking indicator based on signed contracts for home purchases. Those contracts are generally expected to turn into completed sales in about 60 days.
The January PHSI dipped to 106.4 from an upwardly revised 109.5 in December. The December index had originally been reported at 109.0. The index remains 0.4 percent higher than it was in January 2016, but is at the lowest level since then.
This index is beginning to exhibit the same kind of volatility that has marked new home sales in recent months. The index gained 1.6 percent in December, only partially recovering from a 2.5 percent downturn in November.
The January downturn was unexpected. Analysts surveyed by Econoday were looking for a strong kick-off for the new year, with predictions ranging from 0.3 to 1.2 percent gains. The consensus was on the high end of those estimates at 1.1 percent.
Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. “The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” he said. “Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it’s not uncommon to see a home come off the market within a month.” NAR’s report on existing home sales released last week reported a typical marketing period of 50 days in January compared to 64 days in January 2016.
According to Yun, interest in buying a home is the highest it has been since the Great Recession. Households are feeling more confident about their financial situation; job growth is strong in most of the country and the stock market has seen record gains in recent months. While these factors bode favorably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.
“January’s accelerated price appreciation (NAR put the increase at 7.1 percent year-over-year) is concerning because it’s over double the pace of income growth and mortgage rates are up considerably from six months ago,” said Yun. “Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location.”
Yun Silliness
Curiously, Yun claims home are selling at a faster pace although sales collapsed in November and then again in January to the lowest level in a year.
Yun also claims households feel more confident, but somehow that has not translated into more sales, despite the allegedly faster selling pace.
Finally, let’s put to bed this lack of supply theory. Homes are not affordable for those interested in buying. That’s really what it comes down to.
At the right price, houses will sell. Despite price increases, existing owners want more than they can get, so they pull their listing or don’t bother listing in the first place.
Mike “Mish” Shedlock
Here in the SF Bay Area houses have exceed the last bubble peak. There are two additional cause of constrained sales beyond affordability.
1. Retirees hold their houses from the market because it makes no financial sense to down size since there is no less cost inventory to buy. Further it makes no sense in selling a home where their equity is growing in double digits when interest on cash is close to zero.
2. The banks continue to delay the foreclosure process to constrain demand and buoy home prices.
Mark Hanson (blog) follows the Bay Area closely … its on the clock (as is a lot of other locales).
The Wayne, Macomb, Oakland, St. Clair Counties in Michiga, new housing starts down 265 permits to expected 394. They are surprized, nobody else is.
SF also now has permanent demand among int’l buyers.
Very few cities (much less a tiny city of <900k population like SF) have the sort of international buyer demand that SF now enjoys…
Duh.
Fencesitters jumped on board when the Trump Reflation got rolling.
Too bad we’re out of fencesitters … and the whole Trump Reflation was utter NONSENSE.
I LMAO on Billionaire Stanley Druckenmiller’s call of 10 yr yield @ 6%
There is a disconnect in home prices here in MI. The cost of a new home construction is about 35% higher than an existing comparable used home. Construction costs have soared as there is a shortage of skilled labor and as such are asking top dollar. This is all the result of the fed interest rate suppression, and I must add the home mortgage interest tax deduction. This only has resulted in higher home prices with the net result being zero savings for the home purchaser. Another great example of what the heavy hand of govt interference in the free market does.
There is news today about Mayor Duggan pushing the state to dump the no fault auto insurance laws. If you remember back in the early 70s, Michigan’s average insurance bills were slightlt cheaper than neighboring Ohio. I compared the rates about 2 years ago after a Bloomberg report that Detroit was never going to recover because of the cost of owning a car in the city A suburban customer here with a new vehicle would pay 2475 dollars per year for his insurance vs 843 in Ohio. A further check reveals the same cistomer transplanted withon the Detroit City limits was about 5400 per year same car ect. There’s part of the real estatw price problem right there. Also, Snyder turned the income tax cut down. We javen’t mentioned a word about staye regulations at this point. I wonder if Snyder met this weekend in Washington? He seems to still hate Trump.
That would be great. I wonder who the no fault insurance benefits most? Drivers or the insurance companies. Another great example of crony capitalism at work. I keep trying to shop for a cheaper rate but never come up with anything good. My insurance rate shot up to 10k for 4 cars as a result of me hitting black ice on the freeway and totaling my truck. How come health insurance companies don’t raise rates every time you get sick. WTF, I hate insurance companies.
In Michigan your car insurance goes up big time if you don’t have health insurance, or your credit rating goes down, and on and on…. That should tell people that something else is going on and some dude named Fhu King is getting the benefit, but not here. They just shrug their shoulders and keep going.
Houses are extremely expensive in LA, and buyers are getting cold feet…but there is a lot of interest in more modestly priced properties in places like Northridge.
Are people leary of Northridge because of the earthquake back in 1990, or has that been forgotten?
January 17, 1994. I doubt people are worried about buying a house in Northridge. Once a particular fault has moved, it is not going to be moving again in a long time. The quake also affected a wide area. One sound stage at Warner Bros. lost it’s stucco siding on the south wall. At least one home in the Hollywood Hills was bounced off its foundation, causing it to crash down the hill. Others were red tagged.
We all wonder what the damage from a major quake on the over due San Andreas is going to look like.
When you have access to infinite credit, every disaster is another stimulus opportunity.
Ask Krugman about alien invasions.
There is NO shortage of inventory. There is a shortage of affordable home inventory. There are plenty of people who want to buy a home, but at what price?
Maybe (and I know it’s a long shot) it’s a surplus of intelligence rather than a shortage of inventory. Sometimes I think people are crazy to buy what they buy at the price they buy it. I know I am. We have no idea what we need, only what we want, and that passes by before the ink is dry on the contract.
What about the January weather in the West?
Weird. I posted and it never showed up, yet when I attempted to retry it said it was already posted.
This has to do with something called distributed computing. When you posted your message, it probably went to one computer (called node in dist. computing parlance). The nodes usually talk to one another and bring each other up to speed (called replication).
When you reload the page, the data probably came from a node that wasn’t up to speed. When you tried to repost, it went back to one of the nodes that was aware of your previous action.
Thank you. I ended up posting it much later.
In Washington DC, home prices have been pretty stable. Seems like Trump might let a lot of government workers go. Won’t be good for prices. I’m all in favor of reducing the deficit, but letting workers go is the worst way to do it. Employee costs only made up 7.6% of the budget in 2016 and the gov collects much of it back in taxes. Plus, they’ll all be eligible for unemployment benefits. You won’t be able to make much of dent in the deficit by firing workers.
I see another problem. Here in Denver area, there are only big nationwide builders building the same type of houses. Overprized subdivisions, golf course, swimming pool, with what we call “detach townhouses”. Those are designed for baby boomers who’s mind set was always “bigger is better”. Most people I talk to – Millennia’s – wants small houses, half acre land minimum, with organic garden, and to park their camper in front of it. Preferably no-home association. There are no houses like this for sale…
I have a question: how long is this situation going to last?
I do not think there is any way to answer your question other than a guess. If you remember the movie the big short, they almost went broke betting on when it would happen.
I bet on a bear housing market in 2013 … waiting … waiting .. waiting. Can’t wait anymore. Wondering if a ZIRP/NIRP environment means the end of the housing cycle as we know it. I fear I know the answer to that one….
Once interest rates start heading up in a real way, prices will collapse. But that may take generations.
Or a few days.Things go to hell slowly at first….and then all of the sudden.
My daughter works for an installer of cabinets, floors and flooring in new homes here in Jacksonville, fl. They are swamped with work. Doing better than before the housing crash in 08.
Rumor in Texas is that builders don’t know if they’ll have labor (illegals) to finish new construction “starts” on schedule (what with their being deported and all — Thanks Trump), so they’re not so anxious to get contracts signed. One Realtor® I know of says a builder told her that a 6-month construction job is now expected to take 9 months.
Builders are getting a little worried…
http://www.houstonchronicle.com/business/article/Texas-builders-fear-fallout-of-immigration-10959823.php?t=442bb9389c438d9cbb&cmpid=twitter-premium
Being a wood shop owner in Texas, any loss of illegals worries me not as I hire none. It will inevitably push wages up, but that market has not far to go before customers dry up.
Mad SALUTE!!!!
I never hired illegals to build a home never. I am retired now for four years with the exception of doing home designs. All of these illegals do not matter so pisses me off. If they worked in the residential building industry they would be singing a whole different tune. I know from first hand experience. One of my good friends Leyland was a premier framer and his crew was the best.
Recently I called him to do some framing on my current home as I was modifying the front porch and adding a back porch. Leyland no longer has a framing company and is not a construction supervisor for another builder. Why? Because he could not compete with the other companies hiring illegals to do construction work. I still paid his price to do the work at night along with the permits.
If any of these idiots claiming illegals have a right to live here ever worked in any type of construction, doing the lawful thing and hiring citizens of this country, they definitely would not be stating it is OK. You see Leyland was doing the right thing and could no longer compete as he carried all of the insurance and workers comp and other requirements. Hiring illegals and paying under the table allows competitors to charge less as they pays less and do not have anything but the licensing and bonding, no one works for them anymore, so illegals do not pay for all of these requirements and until we hold corporations and companies liable for these type of actions nothing will change until one of them lose a job to an illegal.
I imagine when people start losing their jobs it might change but I will never hold my breath. This is all about frigging votes and nothing more. A serious travesty to those that try to do the right thing and employ skilled Americans.
Massively over-priced mid-range housing means people in starter homes can’t move up and millennials have no real chance to even get into starter homes. It’s rentals and condos for everyone… until the Boomers really start retiring and (unfortunately, no ill wishes intended) dying en masse.
At that point, sometime in the next three to five years or so (1946+ 74 for men = 2020, slightly longer for women) there’s going to be a collapse due to sheer demographics. Gen X can’t possibly hope to fill all of that space and Gen Y / Millennials can’t afford it. The breakdown will probably last 5 years or so until 2025. Gen Y (at that point around 27 years old) should start to create enough enduring demand and a bottom. There are 71 million or so Gen Y, so then an up market should ensue.
NAR is a trade and lobbying group. Why pay any attention. I still remember Lawrence Yun’s great prediction’s as chief economist of the NAR
My daughter is selling her condo. Two offers the first weekend on the market. SE USA. Priced higher than any sales in the complex since 2008.
What happens to all the homes that are not sold through realators? Maybe this part of the story. Cut out the middleman and save money.
Tight supply? That’s a laugh. Banks are still sitting on tens of thousands of unlisted homes. If supply is tight, then it’s by design & collusion.
There is no mystery here… the pool of qualified buyers (proportional to population/housing stock) is FAR smaller than it was 10-30 years ago…
the job was Full-time, now the job is Part-time
inflation in cost of needs, deflation in cost of wants
stagnant income (for 30 yrs. in real terms)
family formation rate low, postponed
pension/retirement@65 is a myth, reality very different
The same crisis from 2007/08 is still waiting for us… bigger & nastier than ever.
The market varies greatly from area to area but in many areas I agree a number of houses remain empty.
That is it, succinctly.
I just KNEW that news blurb about “wonderful home sales” was hooey. That email I sent you was icing on a rotten cake, Mish.
I still have a home in central Evansville, IN that I desperately need to sell, so I can get out from under two of everything that home owners HAVE to pay. My home isn’t listed at an unreasonably requested price,either. In fact, I made a few neighbors angry at undercutting (quite a bit) the current assessed pricing for that neighborhood. Nevertheless, just recently we had a handful of people interested. Of them, two really wanted it. One couldn’t get the money together for a down payment and the other is flipping between it and one other place. When we lived there, a neighbor two doors down moved for a job, and was selling her home. It finally sold, two years later and around 25k less than she wanted to sell it. We just can’t do that ourselves.
Part of the unreasonably set pricing is due to the authorities assessing properties way too high for tax purposes. Yes, you can have it reassessed, but in the end, a home you figure to be worth, say 75k is on their books as worth 100k. And if you buck this system, you’ll pay in spades! It isn’t always the owner’s arrogance or thinking they got something everyone wants, so they set prices high. The whole system is skewed to screw the homeowner, imo.