Pending Homes Sales Are Down 11.6%. Are We In For A “Triple Dip” – Pending home sales fell in April with regional variations following increases in February and March, with unusual weather and economic softness adding to ongoing problems that are hobbling a recovery, according to the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, dropped 11.6 percent to 81.9 in April from a downwardly revised 92.6 in March. The index is 26.5 percent below a cyclical peak of 111.5 in April 2010 when buyers were rushing to beat the contract deadline for the home buyer tax credit.
The data reflects contracts but not closings, which normally occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, said the dip in contracts may be due to temporary factors. “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months,” he said. “The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.
Retail sales slowed measurably in April, while sales at furniture and home furnishing stores declined sharply. The magnitude of the fall in pending home sales is larger than can be implied by broad economic factors, the only way to know is if this continues month-over-month for a period of 3 months. At that point it’s more than an aberration, it’s the norm.
Tightening credit standards are the primary long-term factor holding back the market. There is no doubt that the excessively tight mortgage underwriting process is making the housing market recovery unnecessarily slow. Lenders and bank regulators need to be mindful of the historically low default rates among mortgage borrowers of the past two years. A robust economic and housing market recovery cannot occur as long as banks continue to hold onto huge cash reserves.
Banks lend when they think they have a good credit risk provided they are not capital impaired or concerned about capital impairment. That provision is critical.
Banks do not lend from reserves or even need reserves to lend. Loans come first, reserves second.
The next question that is going to be answered will be this summer. With a little luck and help from a drop in rates we might salvage a somewhat decent summer sales season. If rates spike at all, even a quarter of a point it will be a HUGE hit. Homebuyers (those that can qualify) are cautious. The concern over employment and the affect that is having on the overall market will continue to be a primary factor when it comes time to put the “pen to paper”. If you’re thinking about selling, you need to call my office first.