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What Do the Pending Home Sale Numbers Mean?

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Washington’s Blog
Wednesday, January 6th, 2010

The report released today by the National Association of Realtors (NAR) on pending home sales shows that housing is down:

Associated Press notes that the housing market may be headed for a “double-dip” downturn over the winter, and that the report “adds to worries industry is mostly propped up by government stimulus”.

Remember that pending home sales figures are based on contracts which have been written, but have not yet closed. As NAR notes:

The Pending Home Sales Index [is] a forward-looking indicator based on contracts signed …

NAR explains:

  • Our sample shows that over 80% of all pending home sales go to settlement within a 2-month time-period (and a significant share of the rest close in month 3 and month 4).
  • Not all pending home sales go to closing. A certain percentage of properties that go under contract are cancelled (or fallout) before ever going to settlement.

Given that the big banks have substantially tightened up on lending, it might be that less than 80% of the low number of current pending home sales will end up actually closing.

No wonder the New York Times wrote yesterday, even before the new pending home sales report was released:

When it comes, a lasting recovery will be evident in a housing rebound. Unfortunately, housing appears to be weakening anew …

We wish we could proclaim a Happy New Year in housing. But until more is done to help struggling homeowners, the portents are not good.

This article was posted: Wednesday, January 6, 2010 at 5:17 am

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