The pending home sales index, an estimate of existing home sales, has accurately provided the direction of the monthly home resale reports.
The survey is down for the second month, providing further evidence of a housing slowdown.
The Econoday consensus estimate was for the index to rise 0.5%. Instead, the pending home sales index declined 1.3%.
Spring sales data have not been favorable for the housing sector. Pending home sales are down for a second straight month, 1.3 percent lower in April to an index of 109.8 which is 3.3 percent below this time last year. This index tracks contract signings for resales and the results point to weakness for final sales in May and June. Final resales contracted in April as did new home sales while the month’s housing starts were also weak. Spring is the big season for housing and these are not the results of a sector that will be leading the 2017 economy.
Pending Home Sales Fall Below 2016 Levels
Mortgage News Daily reports Pending Home Sales Fall Below 2016 Levels.
Pending home sales had been expected to rise slightly in April after declining 0.8 percent in March. Instead, the National Association of Realtors’® (NAR’s) Pending Home Sale Index (PHSI) slumped for the second straight month, dropping 1.3 percent. The PHSI, based on contracts signed for existing home purchases, fell from 111.3 (revised from 111.4) in March to 109.8.
The April dip put the Index 3.3 percent below its level in April 2016. This was the first year-over-year decline since last December and the largest since the Index fell 7.1 percent in June 2014.
Lawrence Yun, NAR chief economist, said the fading contract activity in the normally active spring market is due to significantly weak supply levels. These, in turn, are spurring deteriorating affordability conditions. “Much of the country for the second straight month saw a pullback in pending sales as the rate of new listings continues to lag the quicker pace of homes coming off the market,” he said. “Realtors are indicating that foot traffic is higher than a year ago, but it’s obviously not translating to more sales.”
Yun added, “Prospective buyers are feeling the double whammy this spring of inventory that’s down 9.0 percent from a year ago and price appreciation that’s much faster than any rise they’ve likely seen in their income.”
The economist sees little evidence that the record low levels of inventory will improve anytime soon. Homebuilding activity remains below the necessary levels and too few homeowners are listing their home for sale.
“The unloading of single-family homes purchased by real estate investors during the downturn for rental purposes would also go a long way in helping relieve these inventory shortages,” said Yun. “To date, there are no indications investors are ready to sell. However, they should be mindful of the fact that rental demand will soften as the overall population of young adults starts to shrink in roughly five years.”
NAR expects that existing home sales will increase about 3.5 percent from 2016 to 5.64 million units and the national median existing-home price is expected to increase around 5 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.
The decline of sales was nearly nationwide in scope and all four regions are now running lower index numbers than the previous April. The West was the only region enjoying a month-over-main gain. The PHSI in the Northeast decreased 1.7 percent to an index of 97.2, now 0.6 percent lower than the previous April. In the Midwest, the index fell 4.7 percent to 104.4, a decline of 6.1 percent year-over-year.
Supply Issue?
In addition to the decline this month, the Pending Home Sales Index for March was revised lower, from -0.8 % to -0.9 %. The second quarter recovery thesis is dying on the vine.
Once again Yun blames supply. And once again Yun is wrong. If supply was triple and prices remained the same, sales would not be skyrocketing.
Of course, if supply tripled and sales did not soar, prices would drop. That is the real issue. Prices are above what buyers can afford to pay.
Although the number of resales is well below the bubble years, the median price isn’t.
Median Home Prices 1963-Present
More Trapped Homebuyers
New home sales are recorded at signing. Existing home sales are recorded at closing.
Thus, the March report has negative implications for April and May, while the April report has negative implications for resales in May and June.
Looking ahead, existing homebuyers in the last two to three years overpaid. In some areas, notably California, home buyers overpaid dramatically.
Another round of trapped homebuyers unable to sell their homes is right around the corner.
For further discussion, please see Investigating Trends in Median Home Prices: When Did Price Acceleration Start?
Mike “Mish” Shedlock
Lets see what this looks like when every one sees the Fed on autopilot to 2-3%
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You can talk the talk, but can you walk the walk? Bullish trend intact!
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“Looking ahead, existing homebuyers in the last two to three years overpaid. In some areas, notably California, home buyers overpaid dramatically.”
…………….
If what you say turns out to be irrefutably true, then homebuyers are “dramatically” overpaying for their homes in the Seattle market as of right now.
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Numerous U.S. markets are in bubble territory, well above previous peaks in median prices, well above long-term fundamental anchors like income growth. Does that mean the Fed or your local real estate practitioner will acknowledge the bubbles?
“It’s difficult to get a man to understand something, when his salary depends upon his not understanding it.” Sinclair
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Seattle is ridiculously overpriced for what you get….It goes through booms and busts based on hot money, like the rest of the West Coast….
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Here in northern Ca. If you bought a shit box 2-3 hrs ago and sold it today
You would be up at least 150k and have no trouble selling it. Over paid
Is only determined when all comps are selling for less than the price you bought in.
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Silicon Valley housing driven by stock option employees … if any happens to the stock market …
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Come on people…unemployment is below five percent…We all can afford $400,000 for a 6X8 room…
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You forgot to add, “On a minimum wage income.”
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“Another round of trapped homebuyers unable to sell their homes is right around the corner.”
…
Absolutely
I have serious questions about those “all cash” purchases that ranged anywhere from 25% to 40% during the “recovery”. How many were by small time investors who quickly refinanced out after purchase? Or the big investor groups who purchased REOs from lenders (avoiding the mls) … maybe they paid with cash, but they took on a lot of debt to get that cash.
Last go round a lot of single homeowners were trapped … this time? Communities might be faced with investors with multiple properties getting trapped … and if these investors dumped / defaulted en masse?
Cap rates are so low that it won’t take much price depreciation to put investors in a bind (if not truly “all cash”).
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I more or less lucked out when I bought a place in the DFW area in 2013. prices were starting to rise again and I found a property that looked like a good prospect for remodeling at $53000 on a quarter acre corner lot. As it was, remodel was the wrong word, Think renovation. But at least I have the skills to do renovation, from carpentry to electrical, to plumbing, to HVAC, to cement work. I have almost completed the work and it has cost me a fair amount, having spent about $125k in improvements including a 400 sqft shop in the back. Think I saved about $75k in contractor costs if not more. In a few years I think it will sell for about $200k. Not a great profit, but a profit.
The real estate market depends on the metropolitan location and the state, My wife’s father had bought a Kaiser flat top in Sunnyvale, but the county part of that city. He paid about $15k for it in 71. They sold that property for $800k in 2007. Go figure that a quarter acre lot would be worth that much. The people who bought it built a corporate duplex on it. The property values in California are unreal, unaffordable, and down right crazy. But as long as individual and families are leaving California and Illinois for Texas, I feel confident that I can sell my house at a profit and move somewhere else.
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Any price that raises with a fixed percentage each year must be plotted on a logarithmic chart, otherwise they will always look like a bubble. I assume that the lower dotted line in the chart above is where the house prices “should be”. In practice that means that house prices will increase with a fixed, nominal amount of 1500 USD each year from here to eternity. That will not happen in the real world.
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My friend in NorCal has put in offers on three places – the last on he went $25K over asking and still is being beaten out. It is crazy hot in the Bay Area – and he is looking 20 miles from SF.
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Some of these foreclosures today are still the remnants from the housing market bubble
One area I have been watching has quite a few foreclosures with sales from
2005
2006
2007
In which the homeowner has been trying to hang on for the past 10 years paying on an over priced monthly mortgage payment
Now in 2017 they have paid out themselves dry and all for what?
Also the Real Estate agents today are nothing like the agents of yesterday
Today they don’t “verbally” negotiate
Just text ~ email ~ fax with those papers becoming automatically void in 3 days from date of signing
There is no personal connection today
I was taught…
You have to sell yourself to be able to sell anything else
Once your likable you can get anything you want from another
A lot of real estate offers are being left not concluded on the table for lack of verbal negotiations to push the sale into a closing
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Anecdotal evidence from fly-over country in Columbus Ohio says it’s the lack of inventory.
My wife is a realtor and she has been crazy busy this spring but the number of sales are about the same as last year. Why? Because her buyers are competing with at least a dozen other buyers on each and every property. It’s taking her buyers multiple bids to get a house. She has had the most buyers ever this spring but the inventory has not been this low in years.
Evidence of the low inventory. Columbus inventory for April
2013 – 9662 units
2014 – 8439
2015 – 7003
2016 – 5361
2017 – 4338
http://columbusrealtors.com/stats/default.aspx
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We are experiencing the same phenomenon in Seattle. Lower inventory y/y. Yet “the number of sales are about the same as last year.” I think it is due to day-on-market getting shorter. Some new listings never get to be counted as ‘inventory’ when they sell as soon as they come on the market.
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Off Topic: I apologize Mish for going off topic here but I know you can’t help but wonder what the hell is going on with the Chicago PMI earlier today. I mean if all the lower figures were wrong, where did they get those figures to start with? This is something u may refuse to comment on I would guess.
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Was out of town for nearly two weeks – returned yesterday. Did not have time to comment on that.
Briefly, this is yet another case of diffusion indices not at all matching hard data on spending, on autos, or houses.
If companies are ramping up, where are the buyers?
Mish
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Bankers have done it again. Bankers have printed yet another housing mania. How long before bankers demand another bailout? TARP II, renamed with some fancy name. Along with confiscating additional goods via the printing press, for redistribution to bankers.
Meanwhile printing moves Joe and Jane average ever backward.
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“Another round of trapped homebuyers unable to sell their homes is right around the corner.”
A company that is involved in subprime auto loans, only verified the data on only 8% of their applicants.
There was recently a story about massive auto loan fraud. The auto bubble is a parallel to the housing bubble.
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In reference back to Chicago PMI once again, Mish as you have mentioned many times how people are leaving perhaps more than ever as high taxes and violence continue to increase so that a report tonight on the evening news of a weak economic report could push even more people out thus the weak PMI magically becomes a very strong report making the future look bright!
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