Pending home sales took a 2.6 percent dive this month vs an Econoday consensus estimate of a small 0.2 percent decline.
The entire polling range was -0.6% to +1.2% so the consensus estimate was off by 2.4 percentage points. Even the most pessimistic economist was two full percentage points too optimistic.
Don’t blame hurricanes. Pending sales were down in every region.
Existing home sales have been on the decline as signaled all along by the pending home sales index which is down a very steep 2.6 percent in the latest reading which is for August. Hurricane Harvey’s late August hit on Texas didn’t help pending sales in the South which fell 3.5 percent but pending sales show across-the-board weakness: Northeast down 4.4 percent, Midwest down 1.5 percent, and the West down 1.0 percent.
Pending sales nationwide are down a year-on-year 2.6 percent while final sales of existing homes are down 1.7 percent. The pending index has been on a tailspin this year, peaking at 112.3 in February and now down at 106.3 for a year-to-date decline of 5.3 percent. New home sales, along with sales of existing homes, have also been moving lower making for a housing sector that is visibly stumbling into year end. The cause? It’s not mortgage rates which are very low nor employment which is very strong. High asking prices, however, are one factor as is soft wage growth.
NAR Blames Supply
Mortgage News Daily reports Housing Momentum “Drained” Per Pending Sales Data.
The prospects for home sales weakened further in August, and the National Association of Realtors® (NAR) has downgraded its sales forecast for the remainder of 2017. In what must be the gloomiest report in some time, NAR announced its Pending Home Sales Index (PHSI) slipped on a monthly basis for the fifth time in six months; the last increase was 1.5 percent in June. NAR expects the two Hurricanes that hit Texas, Florida, and Georgia to result in slower activity going forward, pulling existing sales below 2016 levels.
Lawrence Yun, NAR chief economist, says this summer’s “terribly low supply levels” have officially drained all of the housing market’s momentum over the past year. “August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes,” he said. “Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search.”
Yun sees little relief from the housing shortages that continue to plague several areas and believes the housing market has essentially stalled. There could be further complications from the hurricanes Harvey and Irma. The former’s damage to the Houston area is already showing up in the August PHSI readings for the South, and Yun expects that will likely continue in the months ahead. The temporary pause in activity in Florida in the wake of Hurricane Irma will slow overall sales even more in the South starting with the September pending sales report.
In light of the above, Yun now forecasts existing-home sales to close out the year at around 5.44 million, down from his previous forecast of 5.49 million.
“The supply and affordability headwinds would have likely held sales growth just a tad above last year,” Yun said. “But coupled with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now appear will fall slightly below last year. The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.”
I’ll Take the “Under” for 2017
I suggest the hurricanes will have a bigger impact than Yun believes.
Already sales are below last year, and there are at least two more months of storm impacts coming.
I’ll Take the “Way Under” for 2018
As for next year, why should sales rise 6.9%? Yun never explained.
I suggest hurricanes will result in more remodeling efforts than moving efforts.
After remodeling, homeowners will want to recoup their investment. They won’t come close.
People cannot afford the asking prices already, and remodeling expenses will not help one bit.
Demand Overwhelms Supply?
Yun says “Housing demand overwhelms supply”. What nonsense.
Admittedly, there is nearly an infinite demand for free stuff.
However, home sales prove there is a dearth of demand at market prices.
When people buy homes, they paint, they upgrade appliances. They put in carpeting and cabinets. They landscape the yard.
There will be some remodeling increase because of the hurricanes, but the net impact of the hurricanes is decidedly negative.
Housing has stalled. Housing and autos were two key economic drivers. Autos will get a decent hurricane boost as explained in Durable Goods Order Jump Led By Autos: Positive Hurricane Impact?
That auto boost will die on the vine quickly.
Despite all the cheerleading, the economy was already struggling. Wages have gone nowhere and the net impacts of hurricanes are negative.
GDP is unlikely to hit even the revised-lower estimates.
Mike “Mish” Shedlock