Pending Home Sales Down On Tight Credit And Economic Slowdown

Pending Home Sales Down On Tight Credit And Economic Slowdown

Residential News » Residential Real Estate Edition | By NATIONAL ASSOCIATION OF REALTORS | November 9, 2008 6:30 PM ET

(ORLANDO, FL) - Pending home sales fell on the heels of a strong gain a month earlier as credit tightened and economic conditions deteriorated, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, declined 4.6 percent to 89.2 from an upwardly revised reading of 93.5 in August, but is 1.6 percent higher than September 2007 when it stood at 87.8.

Lawrence Yun, NAR chief economist, said pending sales have been above year-ago levels for two months in a row.  "The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we're still in a broad period of stabilization," he said.  "Conditions remain mixed around the country, but markets that are showing annual sales gains include Long Island, N.Y.; Boston; Minneapolis; Denver and Washington, D.C., in addition to consistent solid gains in California and Florida." 

The PHSI in the West rose 3.7 percent to 113.6 in September and remains 39.5 percent above a year ago.  In the Midwest the index slipped 0.7 percent to 83.3 and is 3.1 percent below September 2007.  The index in the South fell 7.9 percent to 89.0 in September and is 11.3 percent below a year ago.  In the Northeast, the index dropped 16.8 percent to 66.4 and is 9.4 percent below September 2007.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said it's a challenging time for both buyers and sellers.  "Beyond affordable financing, correct pricing and professional expertise are keys to success in the market today," he said.  "Consumers need Realtors more than ever to help them navigate the transaction process in these uncertain times."

Yun projects growth in the U.S. gross domestic product (GDP) to contract in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as home sales recover.  "Right now we're in a recession and unemployment will increase through 2009," he said. "Consumer spending has halted and businesses are very cautious of expanding.  It is unclear by how much the global economic slowdown will dampen U.S. exports, which had been rising strongly."

"The depth of the recession depends entirely on housing - with sufficient housing stimulus, the recession will be shallow.  If government actions stay focused on housing, the cost to the Treasury would be much less that the potential losses in the nation's output and income in a severe recession."

Looking at middle-ground assumptions, existing-home sales are expected to total 5.02 million in 2008, rising to 5.32 million next year and 5.62 million in 2010.

For all of 2008, home prices will have fallen by more than 20 percent in Las Vegas, Phoenix, and many California and Florida markets, while many markets in middle America will experience little change.  Wide variations in home price movements will continue in 2009, with Houston and Denver likely to see respectable price gains while most other markets experience no notable change.

New-home sales are likely to total around 487,000 this year and 413,000 in 2009 before rising to 520,000 in 2010.  Housing starts, including multifamily units, will probably total 936,000 units in 2008 and 781,000 next year, then increase to 886,000 in 2010.  "Housing construction won't improve before existing-home sales recover and inventory conditions become more balanced," Yun said.

The 30-year fixed-rate mortgage should average 6.2 percent in the fourth quarter, rise gradually to 6.5 percent during the second half of 2009 and then average 6.7 percent in 2010.  NAR's housing affordability index is averaging 19 percentage points higher this year than in 2007, but is estimated to ease modestly in 2009.

The unemployment rate is expected to be 6.4 percent in the fourth quarter and then average 7.0 percent in 2009.  "We've lost jobs throughout the year, and we could see jobs continue to decline for another six months - unemployment may top out around 7.0 percent," Yun said.

Inflation, as measured by the Consumer Price Index, is seen at 4.4 percent for 2008, easing to 2.2 percent next year.  Inflation-adjusted disposable personal income is projected to grow 1.4 percent this year and 1.6 percent in 2009.

The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

NOTE: The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales.  In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months.  There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.

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