Tuesday, April 3, 2007

Pending Home Sales Surprise on the Upside

From Bloomberg:

More Americans signed contracts to buy previously owned homes in February, easing concern the real- estate market will worsen.

The index of signed purchase agreements, or pending home resales, rose 0.7 percent to 109.3, after a revised 4.2 percent drop in January, the National Association of Realtors said today in Washington. The index was down 8.5 percent from February 2006.

Rising incomes and lower prices are making homes more affordable, offsetting concern that subprime mortgage defaults will add to the glut of properties already on the market. Federal Reserve policy makers forecast the damage to the economy from the housing slump will be contained, allowing the expansion to proceed at a ``moderate'' pace.

From CBS MarketWatch:

Pending sales of U.S. homes rose by 0.7% in February, although the gain may have been held in check by bad weather during the month and possible negative impacts from the shakeout in the subprime lending market, the National Association of Realtors said Tuesday.


"If it wasn't for the unusually bad weather in February, we'd be seeing a better performance in pending home sales," said NAR chief economist David Lereah. "We also may be seeing some fallout from a decline in subprime lending."


Pending homes sales rose in the South and Midwest but fell in the Northeast and the West, the Realtors said. Sales rose by 4.5% in the South and by 2.9% in the Midwest. In the Northeast, sales dipped by 1.3%. In the West, pending sales fell by 6.0%.

From the National Association of Realtors Press Release:

The Pending Home Sales Index,* based on contracts signed in February, stood at 109.3 – down 8.5 percent from February 2006 when it reached 119.4, but is 0.7 percent higher than a downwardly revised reading of 108.5 in January. Earlier, mild weather caused the index to spike at 113.3 in December.


The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Let's go back through these releases.

1.) January was revised downward. That's not a good sign.

2.) This is not a very large increase.

3.) The chief cheerleader economist says weather kept the numbers in check. However, sales dropped 6% in the West -- a region not hit by bad weather.

4.) People can still cancel the contract for a variety of reasons after signing the contract.

5.) "We also may be seeing some fallout from a decline in subprime lending." Ya think?

6.) Pending numbers are still down year-over-year in a big way. That's also not good.

My guess is one or both of the following:

1.) This is a statistical blip on a downward trajectory and/or

2.) This number will come down in the coming months.