Housing Kicks into Gear

June 30, 2014

Pending home sales in May posted the largest monthly increase since the expiration of the first-time home buyer tax credit in April 2010. The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts reported by the National Association of Realtors (NAR), increased 6.1% in May to 103.9 from an upwardly revised April level of 97.9. It is important to note that the May reading was down 5.2% on a year-over-year basis.

Pending Home Sales May 2014

The May PHSI increased in all regions, ranging from 8.8% in the Northeast to 4.4% in the South. Year-over-year, however, only the Northeast posted a small increase of 0.2%. The three remaining regions all fell on a year-over-year basis ranging from a 2.9% decrease in the South to an 11.1% decrease in the West.

Last week, Census reported an 18.6% increase in May new home sales, and NAR reported a 4.9% increase in May existing home sales. The May increase in the PHSI suggests that the existing home market will continue to improve this summer as the market recovers from a disappointing winter period. The growth in household formations and strong pent-up demand will maintain that momentum throughout this year.


Pending Home Sales Remain 9% Down Year-Over-Year

May 29, 2014

The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, increased a slight 0.4% in April to 97.8 from a March level of 97.4. The PHSI monthly increase reported by the National Association of Realtors was the second since June of 2013. However, it is important to note that the April reading was down 9.2% on a year-over-year basis.

pending_05_14

The April PHSI increased in the Northeast by 0.6% and 5% in the Midwest but fell 0.6% in the South and 2.9% in the West. Year-over-year, all of the regions remain down, ranging from decreases of 15% in the West and 12% in the Northeast to 6.9% in the Midwest and 6.4% in the South.

The 0.4% increase in pending home sales in April contrasts with the 6.4% increase in new home sales for the same month. New home sales are down 4.2% on a year-over-year basis.

 


Pending Sales Change Course

April 28, 2014

The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, increased 3.4% in March to 97.4 from an upwardly revised February level of 94.2. The PHSI monthly increase reported by the National Association of Realtors was the first since June of 2013, although it remains 7.9% below the level of 105.7 last March.
Pending Home Sales March 2014

The March PHSI increased in the West, South and Northeast by 5.7%, 5.6% and 1.4% respectively, but fell slightly in the Midwest. Year-over-year, all of the regions were down, ranging from decreases of 11.1% and 10.1% in the West and Midwest to decreases of 5.9% and 5.3% in the Northeast and South.

Last week, Census reported a 14.5% decrease in March new home sales. Extreme weather was a factor in decreased new and existing home sales at the beginning of the year. The March increase in the PHSI suggests that the existing home market will move forward throughout the spring. The growth in household formations and strong pent-up demand will maintain that momentum throughout this year.


Weather or Not

February 28, 2014

The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, ticked up 0.1% in January, following a revised 5.8% drop in December, which was the lowest since the 94.6 reported in November 2011. The January 2014 PHSI reported by the National Association of Realtors (NAR) was 9.0% lower than the same period a year ago.
Pending Home Sales January 2014

The January PHSI increased in the South and Northeast by 3.5% and 2.3% respectively, but decreased in the West and Midwest by 4.8% and 2.5% respectively. Year-over-year, the January PHSI fell in all four regions, ranging from 17.5% in the West to 5.3% in the Northeast.

The January 2014 PHSI broke a pattern of decreasing PHSI readings from July through December 2013. The NAHB Wells Fargo Housing Market Index reported a 10 point drop on February 18, and NAR reported a 5.1% January decrease in existing home sales on February 21. Two days ago Census reported a 9.6% increase in January new home sales. Yesterday, Federal Reserve Chair Janet Yellen reported to the Senate Banking Committee suggesting that extreme winter weather might have been a factor in the economy hitting a slow patch, but that any adjustment in strategy would await further data. Today the government revised fourth quarter GDP growth down to 2.4%.

The jury is out as to what impact severe weather has had on the housing market. The slight uptick in PHSI indicates that although existing home sales during the first quarter of 2014 will be dampened by severe weather, demographic growth and pent-up demand will support a modest recovery leading to higher levels of new residential construction activity going forward.


Pending Home Sales in Deep Freeze

January 30, 2014

The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, fell 8.7% in December to 92.4, from a downwardly revised 101.2 in November. The December 2013 PHSI reported by the National Association of Realtors (NAR) was 8.8% lower than the same period a year ago, and was the lowest since October 2011.
Pending Home Sales December 2013

The December PHSI fell in every region: 10.3% in the Northeast, 6.8% in the Midwest, 8.8% in the South and 9.8% in the West. Year-over-year, the December PHSI fell 5.5% in the Northeast, 6.9% in the Midwest, 6.9% in the South and 16.0% in the West.

The PHSI has decreased every month since May. The NAR attributed much of the gyration in the December PHSI to “unusually disruptive weather across large stretches of the country.” If weather was the driving force, then the continued extreme winter weather throughout the country, including the South, does not bode well for existing sales in January and February.

A policy item that could also affect existing home sales is the recent expiration of the tax exclusion for mortgage debt forgiven. A tax extender item that expired at the end of 2013, the sunset of the tax exclusion may reduce the volume of short sales that involve a partial writedown of mortgage principal. Absent the exclusion, the forgiven debt is treated as taxable income, which reduces the incentive for some underwater homeowners to sell their principal residences. It is unclear when Congress will deal with tax extenders in 2014.

Over the long run, economic and housing data continue to describe a modest recovery for housing that will lead to higher levels of construction activity in the years ahead. While this most recent information illustrates that there will be occasionally extreme fluctuations, demographic growth and pent-up demand will support housing recovery going forward.


With the Bump in Interest Rates Behind Us, Sales are Returning to Normal

December 30, 2013

The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, ticked up 0.2% in November to 101.7 from a downwardly revised 101.5 in October. The November 2013 PHSI reported by the National Association of Realtors (NAR) was 1.6% lower than the same period a year ago.

Pending Home Sales November 2013

The November PHSI increased 2.3% and 1.8% from October in the South and West respectively, but fell 2.7% and 3.1% in the Northeast and Midwest. Year-over-year, the November PHSI increased 1.9% in the Northeast and less than one percent in the Midwest and South; the November PHSI fell 8.7% from the previous year in the West.

With the PHSI essentially flat at the end of the year, it is expected that existing home sales will remain roughly level at least during the first few months of 2014. After a surge in sales reacting to the late summer increase in interest rates, potential buyers have recognized that these modestly higher rates still represent very favorable home buying conditions. These new data suggest that after this brief period of fluctuation, the long-term trend is one of a stable level of sales.

Over the long run, economic and housing data continue to describe a modest recovery for housing that will lead to higher levels of construction activity in the years ahead. While recent information illustrates that there will be ups and downs along the way, demographic growth and pent-up demand will support housing recovery going forward.


Pending Home Sales Down but Stable

November 25, 2013

The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, fell a slight 0.6% in October from an upwardly revised 102.7 in September. The October 2013 PHSI reported by the National Association of Realtors (NAR) was 1.6% lower than the same period a year ago.
Pending Home Sales October 2013

The October PHSI increased 2.8% in the Northeast and 1.2% in the Midwest; the PHSI fell 4.1% in the West and 0.8% in the South. Year-over-year, the October PHSI increased 8.1% in the Northeast and 3.2% in the Midwest; the PHSI fell 12.1% in the West and 1.5% in the South.

NAR reported that the October PHSI was at the lowest level since December 2012. It is worth noting that existing homes sales are reported on a contracts closed basis, so they reflect market conditions with a longer lag than pending sales. The 5.6% decrease in the September PHSI was consistent with the subsequent 3.2% decline in October existing home sales. After the brief surge in sales in the spring and summer as buyers reacted to the increase in mortgage rates, the government shutdown contributed to a dampening of sales. These new data suggest that after this brief period of fluctuation, the long-term trend of increasing sales will continue.

Over the long run, economic and housing data continue to describe a modest recovery for housing that will lead to higher levels of construction activity in the years ahead. While recent information illustrates that there will be ups and downs along the way, demographic growth and constrained housing inventory will support housing demand going forward.