Thursday, January 04, 2007

Pending the Bottom

Today, the National Association of Realtors (NAR) released its November “Pending Home Sales” report which showed that nationally, pending home sales had declined 0.5% as compared to October and dropped 11.4% as compared to November 2005.

The National Association of Realtors developed the “Pending Home Sales” index (PHI) as a leading indicator based on a random sampling of roughly 20% of the month’s transactions for exiting home sales and indexed to the average level of contract activity set during 2001.

In typical fashion, David Lereah, Chief Economist of the National Association of Realtors attempted to spin the data to a more positive outlook while presenting yet another version of his fatigued Pinocchio-economic “market has bottomed” analysis.

“Because there is a stronger parallel between changes in the index from a year ago and the actual pace of home sales in coming months, the index is pointing toward fairly stable home sales in the near future, … That is another indicator that home sales likely bottomed-out in September.”

As usual, looking more closely at the results one might draw a less optimistic conclusion:

  • Nationally the index was down 11.4% as compared to November 2005
  • The Northeast region was down 9.6% as compared to November 2005.

    Additionally, November marks the sixth consecutive month that this region has registered activity BELOW the average activity recorded in 2001, the first year Pending Home Sales were tracked.

  • The West region was down 15.9% as compared to November 2005.
  • The Midwest region was down 11.9% as compared to November 2005.
  • The South region was down 8.9% as compared to November 2005.
Alternatively, examine at the follow Pending Home sales charts produced by NAR (these are from Octobers report, Novembers should be available later today) and see if you can find the bottom.

The top chart shows the progress of the national PHI since January of 2005 while the lower chart shows the progress of national PHI since January 2003. The left side of both charts is the PHI value, the bottom is the date.

So it appears that, year-over-year, contract activity is dropping rather sharply with ALL regions now showing significant declines.


  1. When will prices do the same?

  2. Looks like 2007 will shape up as the year for price declines.

    It's like a one-two punch analogy.

    2006 saw the major inventory rise and sales declines. Any Additional selling weakness in the spring should bring prices down quite a bit as sellers and real estate "investors" start to accept certain realities.

    Also, remember that there have already been substantial price declines in terms of actual prices and incentives.

    Some towns in Massachusetts have already registered mid-teen to twenty percent corrections to their median home value in just 2006.

    That type of reduction should play out all around the country especially if the spring is a wash.

    Look for 2007 to do to prices what 2006 did to sales.

  3. Anonymous10:21 PM

    A sputtering housing market is the “biggest culprit” behind the layoff, said Brown.

    “If the new-housing bubble starts to burst, it makes a huge impact on business,” Brown explained. The Huntington UTEC plant manufactures electronic components for heating and air conditioning units.

    “We do still have a commercial line, but a big portion is residential. If the housing market suffers, we will as well.”

    Brown said that the news of the layoff rode followed a period of “growing and hiring” for the plant.

    “What concerns me is that last year we had some of the highest employee numbers ever,” he added, estimating that approximately 100 additional employees had been hired.

    If layoff starts to increase then foreclosure should follow.

    The impact to housing price will depend on the amount of foreclosures that the banks will need to absorb.

  4. Anonymous11:14 PM

    Anyone has a complete list of sub prime lenders and the amount of loans they made from 2000 to 2006?

    Here is a list sub prime companies that made head line in the past several weeks:

    1. Ownit Mortgage Solutions

    2. Harbourton Mortgage
    Investment Corporation

    3. Alliance Home Funding LLC

    4. Sebring Capital

    5. Mortgage Lenders Network

    6. Ameriquest Mortgage Co

    7. ABN AMRO Mortgage Group

    8. First Franklin Financial Co

    9. Green Tree Financial Corp

    10. ECC Capital Corp

    11. EMC Mortgage Corp

    12. MortgageIT Holdings Inc

    13. Capmark

    14. Saxon Mortgage

    15. Nationstar Mortgage LLC,

    16. Aegis SubPrime Unit

    17. Secured Funding