Pending Home Sales Are Up: Does That Mean Anything?

The housing market seems to be sprouting green shoots right and left — or is it?

Reuters reports that the NAR’s pending home sales index was up for March:

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in March, rose 3.2 percent to 84.6 as first-time buyers waded into the market to take advantage of favorable prices and mortgage rates.

A separate report from the Commerce Department showed U.S. construction spending rose 0.3 percent in March, the first increase in six months.

Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut, said the pending home sales report added to evidence that sales have reached a bottom.

“That’s critical because once sales bottom, it’s only a matter of time before you work off excess inventories. That’s the key to stabilization in the financial system and the economy at large. We’re closer to that than people thought just a few months ago.”

Well and good and it fits with the post I put up yesterday about the activity at a San Diego new home development. But, then I find this post in Housing Doom:

Who’d have thought?

Speculators and prospective home owners came out in droves to buy homes in the Phoenix area.  M did an early check of the sales numbers, and here’s the unofficial sales for April:

Listings               39,547
Under Contract    16,779
Sold                     8,419

These numbers are only preliminary- agents have several days to update their listings, so ARMLS will likely report a higher number.

Listings have dropped to a level we haven’t seen since April 2006.  Sales are at a level we haven’t seen since October 2005.

I will undoubtedly be accused of being a perma-bear, but I don’t believe, even with sales at record levels [Only 14 months have been busier] that this indicates “recovery”.  Only the lower half the market has recovered.

Check out this chart from last week’s post:


Higher end properties are going to have to drop their prices significantly to adjust to this market.  That will tend to put downward pressure on all prices.  High speculator participation and a cooling economy are also risk factors for the market.

It’s nice to see that there are affordable homes for those who want them, but there are still risks involved when purchasing Phoenix real estate.

So, sales are way up but only in a small sector of the market and investors are driving a large part of that market. That doesn’t sound particularly healthy, in fact it kind of sounds like the dynamics that prevailed during the boom. 

I poked around the Web and even the realtor sites that hype the market don’t play down the investor angle. One put investor purchases at 20% of the market in March but they didn’t supply any sources to validate the data, however, there seems to be enough anecdotal evidence to assume that investors are part of the demand.

Phoenix obviously isn’t the whole market so I don’t want to make too much of a case one way or the other that what is happening there means a lot to the overall market. It is, however, interesting and a bit perplexing. Frankly, I don’t know quite what to make of it. 

Before I let go of this bone, let me post one other graph. It’s from Jake at EconomPicData. com. 


As you can see, the pending home sales number bounces all over the place and it has a lot of seasonality. Any short series of data points probably don’t mean all that much.

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