Decline In Pending Home Sales Marks ‘Transition’: NAR
The most forward looking indicator of home sales is out. “Pending home sales, the leading indicator for the housing sector, are continuing to ease, according to the National Association of Realtors. The index, based on contracts signed in April, fell 3.7 percent to a level of 111.8 from an index of 116.1 in March, and is 11.7 percent below April 2005. This marks the third consecutive monthly decline.”
“The index is based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.”
“David Lereah, NAR’s chief economist, said various housing and economic indicators have been moving in different directions. ‘When some measures are up and others are down, it tells us that we’re in a period of transition. Pending homes sales probably give us the best measure for the overall direction of the housing market, which is falling from historical highs,’ he said. ‘I see this time of adjustment as being a trough in home sales that will more or less level out toward the end of the year.’”
“Overall construction activity suffered the first setback in 10 months in April as residential homebuilding dropped by the largest amount in more than two years, the government reported Thursday.”
“The Commerce Department said that total construction spending dipped by 0.1 percent in April, the first setback since June 2005, with much of the weakness coming from a 1.1 percent fall in residential construction, the biggest drop in this sector since January 2004.”
“Average U.S. home prices rose 12.54 percent over the 12 months to March 31, but gains in the most recent quarter indicate easing in the market, the U.S. Office of Federal Housing Enterprise Oversight said on Thursday.”
“Home prices rose 2.03 percent from the fourth quarter of 2005 to the first quarter of 2006, or at an annualized rate of 8.12 percent. That quarterly rate is the lowest since the first quarter of 2004, the government agency said.”
“While house prices continued to climb in many areas, some states saw price declines in the first quarter for the first time since the fourth quarter of 2002, the report said.”
From the OFHEO sites PDF file. “An important factor that has affected the HPI in some recent quarters is the influence of refinancings on the overall index. Valuations derived from refinance appraisals are constructed under different circumstances than those surrounding purchase prices; appraisers operate under specific types of pressures and may employ different ‘comparable’ properties in estimating value than were (implicitly) used in the formation of a purchase price.”
“Similarly, appraisals conducted for ‘rate-term’ refinances can in fact look different from appraisals for ‘cash-out’ refinances. In areas where the cash-out refinancing has grown the most, the divergence between the HPI appreciation rate and the purchase-only rate is the greatest.”
“In conclusion, the empirical evidence suggests that the growing prevalence of cash-out refinances over the last year has had the effect of increasing measured appreciation rates for the HPI. Homes with cash-out refinances likely are disproportionately those that have experienced the most appreciation. Thus the HPI dataset, which includes appraisals used for cash-out refinances, may have relatively more rapidly appreciating houses than the purchase-only index.”
Ben & Bloggers,,,Sorry; OT but, I believe important info for some….
For some who are not aware, I am here in Santa Clara, Ca…Literally the epicenter of Silicon Valley…I monitor my local real estate market like an intensive care nurse would monitor a quadruple bypass patient…
For the first time in two years our inventory has gone over 100 SFR’s and the ratio over the last couple of weeks has a 2 to 1 listings over sales….I think the “Mustard is off the Hot Dog” and IMHO, I believe this could be the tipping point for our market and we will now see a correction in pricing…How far and how fast is anybody’s guess but with the amount of new product under construction (Condo’s mostly) I have a un easy feeling particularly for this fall…
I have witnessed 2 sizeable downturns in my career…1981-83 & 1991-1993…If our job market falters this one will be worse…To much leverage…
I will update the blog as things change in any significant way…
SCDAVE….
Sun is laying off 5000 employees in the next 6 months…
tweed;…consolidating Newark & Sunnyvale campus into Santa Clara Headquarters…Maybe not many layoffs here yet ???
Notice of Trustee’s Sale numbers for Maricopa County (Phoenix Metro):
Jan 05 1297
Feb 05 940
Mar 05 1040
Apr 05 766
May 05 759
Jun 05 767
Jul 05 748
Aug 05 795
Sep 05 669
Oct 05 728
Nov 05 704
Dec 05 749
Jan 06 726
Feb 06 687
Mar 06 790
Apr 06 638
May 06 705 thru 5/30
No distress yet…
Comment by fred hooper
2006-06-01 08:07:41
I’m distressed….
____________________________________________________
Clearly the source of your hostility.
That’s a lot of sales, Do you have the R.E.O. numbers for those months as well.
SC Dave - I’ve been tracking SC County inventory since last spring. I’ve noticed the increase in listings as well - however, I don’t have the detailed information that you do. Thanks for sharing!
Just found this in Seattle Craiglist. This guy could be in serious cashflow. It looks like all 3 properties are empty without rental income to cover the carnage.
http://seattle.craigslist.org/rfs/166619649.html
There is a granite countertop in one.
Can we add “Instant Equity” to the list of new real estate phrases coming out of this bubble? What the heck does it mean, really, that the seller is giving the property to you for less than it’s worth out of the kindness of his heart? I’ve been seeing this phrase more and more as this thing begins to unravel.
Instant Equity means that you can get a fraudulent appraisal that will say the home is worth more than you can sell it for. That might allow you to buy the house and then get a HEL from it.
These RE guys usually sell their dogs to cover other properties. I wonder what else he is holding that will need liquidation shortly.
7529 Braemar DR., Edmonds, WA 98026 listed originally for $850k, now listed for $800k, and I will sell to you for $770. This house will appraise for 850k! 170k in this remodel.
Sale History
04/11/2005: $630,000
02/19/2004: $320,000
19939 SE 27th PL, Sammamish, WA 98075 listed aggressively for 705k, dropped to 699k, I will sell to you for 675k. This house will appraise for 735k! $150k in this remodel!
Sale History
08/12/2005: $638,500
02/14/2005: $540,000
02/11/2005: $425,000
907 E Howe Street, Seattle, WA 98102, listed for $1,500,000 and just dropped to $1,400,000. This house has comps going up to 1.8 million but was originally listed for it’s true value. $350k in this remodel!
Sale History
12/22/2004: $94,000
07/02/2003: $750,000
Gekko,
Excellent work! Seems our friend that owns a mortgage company has his “boo-boo” in wringer! He’s loaned out (or arranged a loan) for WAY more than these peoperties are worth. Since they have all had “extensive” remodeling let’s assume he made these loans to some sort of flipper, brother-in-law or other chump. They are now BOTH on the hook! He may be in jeopardy of losing the properties, his reputation and face prosecution for mortgage fraud. I do not envy this person. Good luck Casey.
I see this all the time when I look up the history on homes that “desperate” and “motivated” sellers are trying to unload. They’re far from being in pain and often have a long way to drop the price before they get hurt. It’s just a “Operators are standing by. Buy now!” scam.
I like the guy (or gal) who bought the second house for $540,000, 3 DAYS after it closed for $425,000.
reminds me of this -
AOL 1/3/00 $83
AT&T 3/29/00 $61
Apple 3/23/00 $75
Amazon.com 12/9/99 $113
Cisco 3/27/00 $82
Ciena 10/20/00 $151
Corning 8/30/00 $113
Dell 3/22/00 $60
EMC 9/25/00 $105
eBay 3/27/00 $127
Intel 8/28/00 $76
JDS Uniphase 3/7/00 $153
Juniper 10/16/00 $245
Lucent 12/29/99 $74
Microsoft 12/30/99 $120
Nortel 7/25/00 $89
Oracle 9/1/00 $46
Sun Micro 9/1/00 $65
Yahoo 1/4/00 $250
Looked up a couple adjusted for splits - they recovered to the point of “time to sell again”. This time the stock bubble won’t come back for 15 years.
When it goes the other way it’s called instant inequity.
This is the sort of thing that kills the market and starts panic selling.
One guy has to liquidate 3 homes and starts dropping prices to do so. If/when they sell, the comps get published and that makes other people aware that they are either under water or holding a depreciating asset. So they decide to sell. And they find they have to drop prices to move their properties. And then the comps get published, even lower than the first guy’s. Which makes the situation even worse, causing even more people to be underwater or aware they are holding a depreciating asset.
Once the discount selling starts, it creates a cascading waterfall.
There has been a lot of discussion on these forums about whether people will actually sell or just hold out through the downturn. Of course, some won’t sell. (Fools !) But, there will always be enough people around that can’t renew their mortgages or need to move or need the money or want to take profits that there will always be “motivated sellers”. This is especially so because the equity in the properties is so low, they have negative cash flow and flippers have been using the appreciation and HELs as income. When the appreciation stops and the flippers can’t get an income and the cash flow goes negative, this is going to get very, very ugly.
I am surprised to see this happening in Seattle. I thought the market was pretty robust there. Maybe this guy is covering California properties.
tweedle-dee,
I am suprised as well! That doesn’t mean I don’t like it! You make an excellent point. I have only to imagine that so many of the flipper crowd got their money “up front”. Meaning they had a buddy that just got out of prison and started a mortgage firm so they would instantly have the home “re-appraised” based on all the faux wood flooring and paint they were going to install and then HAD to make the lender whole on the sale! What a great lifestyle! Builders? Builders LIVE off of borrowed money. How do I know this? Because when the money dries up, so do they.
I’m not surprised at all. I’ve been watching the MLS and tax lists since Fall ‘05 and the sales histories of Seattle homes, even ones in great neighborhoods would make your eyes pop out.
There has been a LOT of flipping and doubling of prices in a year, selling 2 and 3 times in one year, all kinds of crap.
The only reason the market looks robust is if you are in a place that’s much higher priced than Seattle.
Anyone who comes here from out of state to buy better do their homework on the tax lists first. When the market corrects, they could be stunned to find that their 1.5 million dollar property is sitting in a neighborhood of 400K homes.
“I have three homes for sale!!! I am a real estate investor that needs to liquidate. I will do a FSBO for your benefit. This way you can enjoy instant equity! I own a mortgage company and will do a no fee loan for you as well.”
Certainly not an offer anyone with all their marbles would seek. Let’s see… a motgage broker, who is necessarily involed in the current real estate market, wants to sell me instant equity, much less, anything at all!
Only a fool would buy from ANYONE in the real estate industry.
From the NAR:
April Pending Home Sales (PDF)
Unadjusted Year over Year Changes
U.S. -12.8%
Northeast -10%
Midwest -18.4%
South -7.7%
West -18.7%
that reminds me that the assessor’s site for my area (ann arbor MI) is either seriously screwed up or there’s something up with recent sales. I check to see what’s sold periodically, and *nothing* is listed as happening transaction-wise from 5/4/2006 onward. Nothing. I wonder why…
Now the site “has been temporarily disabled. Please check back later”. Maybe they sold so many properties that they haven’t caught up yet in recording them. I’m really curious–maybe my realtor is “right” and people are just ‘jumping’ on the purchase opportunities now!
Hey, grim, did the OFHEO calculate what the 3 month change would be for purchase sales only? YoY they said it would reduce the change from 12.5% to 10.04%, a -2.46% difference. The purchase + refinance 3 month difference was +2.03%, leading me to wonder if the 3 month purchase only change would be negative.
Also, btw, I was in conference yesterday with someone who passed on the info that a Wildwood (NJ shore) realtor told her that they had ZERO closings scheduled for June. Thought you might find that interesting.
“David Lereah, NAR’s chief economist, said various housing and economic indicators have been moving in different directions. ‘When some measures are up and others are down, it tells us that we’re in a period of transition.
I bet a DNA test would reveal that David Lereah is Joseph Goebbel’s love child, though “Comical Ali” (former Iraqi gov’t spokesman) might also have been present at the conception.
If you ever saw the movie twins, where Danny DeVito plays the “rejected” DNA to make the perfect man, that is mr. lyarreah!
Sales down, foreclosures up. What’s confusing about that?
Suzanne,
Well exactly! I wondered what is it that this man finds so befuddling? Makes me wonder, as it becomes glaringly obvious that he is/has/and never will be anything more than an industry cheerleader who will the NAR choose to replace him?
Or took first rate lying lessons from conservative think(thoughtless) tanks.
Nah — I heard he studied at the feet of the master. the master is Frankling Raines, close chum of Oral Bill.
Fetch me a 2 by 4 boy!
community banking bill- was from bill
More of the blind minority desperately defending a failed and flawed economic model and president……. sad.
Well, more bad data for the housing sector and the HBs rally anew.
Can’t go straight down. Counter intuitive that is fer sure….
This is exactly why I think the govt is stabilizing. It would not be very hard — the HBs are thinly traded, so playing around with some stealth market manipulations could have a big effect — but they are high profile, as their price movements are the leading indicator for where the bubble is headed. But the bad news for the housing bubble keeps coming, and every time, the builder stocks rally. Why would anyone other than policymakers have an incentive to buy into a sector as it is tanking?
“Casey Camby
Mortgage Consultant ”
How would you like to have this turkey as your “consultant?”
Three strikes (houses) and he’s out.
From the update:
‘An important factor that has affected the HPI in some recent quarters is the influence of refinancings on the overall index. Valuations derived from refinance appraisals are constructed under different circumstances than those surrounding purchase prices; appraisers operate under specific types of pressures and may employ different ‘comparable’ properties in estimating value than were (implicitly) used in the formation of a purchase price.’
‘Similarly, appraisals conducted for ‘rate-term’ refinances can in fact look different from appraisals for ‘cash-out’ refinances. In areas where the cash-out refinancing has grown the most, the divergence between the HPI appreciation rate and the purchase-only rate is the greatest.’
‘In conclusion, the empirical evidence suggests that the growing prevalence of cash-out refinances over the last year has had the effect of increasing measured appreciation rates for the HPI. Homes with cash-out refinances likely are disproportionately those that have experienced the most appreciation. Thus the HPI dataset, which includes appraisals used for cash-out refinances, may have relatively more rapidly appreciating houses than the purchase-only index’
If I am reading this right, the OFHEO is saying that areas with higher appreciation rates are also the regions with the highest cash-out refinancing.
You would think this would be a big red flashing danger sign for lenders doing cash out refis!!! If the cash out refis are bringing in higher appraised values than purchases…WTF I don’t even know what to say. This is all just getting so ridiculously STUPID.
Why even do an appraisal?
The way I read it, they seem tobe suggesting that in areas with a lot of cash-out refinancings, their index may be being inflated?
“Thus the HPI dataset, which includes appraisals used for cash-out refinances, may have relatively more rapidly appreciating houses than the purchase-only index”
Apparently the OFHEO is too blind to see that, in a floundering market, mortgage brokers and homeowners do whatever it takes to kick the ATM machine just one more time. There are always appraisers who will push the numbers to make the deal fly.
These speculators will do high LTV cash-out refi’s based on wildly inflated apprasials before they’ll stop making their mortgage payments.
If I am reading that right, then the OFHEO is averaging in appraisal data for constructing its price index (and I am optimistically assuming that at least some of the price data they use reflects market transactions!). There is a serious qualitative difference between market transaction price data, which reflects what a willing buyer paid a willing seller, and appraisal data, which may be more of a reflection of whatever number was needed to make the deal go through.
I would put very little faith in a housing price index heavily influenced on recent appraisals, given all the buzz about appraisal fraud that we have read here from multiple credible sources, and this is exactly what this mea culpa footnote seems to suggest is going on.
yes, the “main” OFHEO number uses both sales and the appraisals done for refis. And Lawler’s note is implying that you get more cash out refis on properties that appreciate, so that they are getting overweighted in the index. But yesterday, at the American Real Estate & Urban Economics Association (AREUEA, pronounced like a Garrison Keilor hot suace), a Fannie Mae economist showed a graph with appraisal bias (defined as the difference between the appraisal and an AVM value that Fannie got after buying the loan) over time, and showed that appraisal bias was small in rapidly appreciating markets, and became huge (over 8%) in flat or falling markets. His guess was that borrowers had a cash out target for repairs (or motorcycles or whatever) and the appraiser could hit the target legitimately in a booming market, but had to fudge in flat or falling markets. So that analysis would imply, as a previous poster in this thread had, that the OFHEO index also reflects an increasing appraisal bias from the end of the boom, on top of the overweighting that Lawler is referring to in that note. BTW - the “main” index showed an increase of 2% for the quarter, while the “purchase only” index showed an increase of 1.25% for the quarter. I think that 1.25% is more or less legit, when you bear in mind that the OFHEO numbers are only for existing housing, and the big price cuts we’ve seen so far have mostly been in new construction, coupled with the time lag inherent in the source of OFHEO’s data (first a property transaction, then a sale to a GSE which might not happen for a couple of months, etc.) The newest quarter in the OFHEO index is always weighted towards the start of the quarter, until the first revision 3 months later.
Great post! It sounds as if the appraisal bias hangover’s effect on price indexes at the turning point may help explain the rather gaping hole between bid and asked prices in markets where price appreciation is grinding to a halt (like in many cities named after Catholic saints — San Diego, Santa Barbara, and San Francisco, to name three), as published data leads sellers to believe their homes are worth more than buyer’s private information suggests they can afford.
I will see if we can get more feedback on this over the weekend.
“I bet a DNA test would reveal that David Lereah is Joseph Goebbel’s love child, though “Comical Ali” (former Iraqi gov’t spokesman) might also have been present at the conception.”
He also could have been conceived in a tryst between Lord Haw Haw and Tokyo Rose.
Comment by nobubblehere
2006-06-01 07:54:53
He also could have been conceived in a tryst between Lord Haw Haw and Tokyo Rose.
_____________________________________________________
Or Sean Handjobbity and Anne CoulterGeist?
The_LIngus, it seems that you have the wrong site…this is a bubble blog, not the daily koz…
The_Dingus was kicked off koz for ranting about the housing bubble too much. Since most of the facilitating government institutions behind the credit-expansion and bubble were socialist engineering projects backed by Democrats and other Liberals.
Whats koz…. gotta link?
http://www.dailykos.com
You will love it there. Full of people with amazing insight although some of them aren’t really true liberals. I’m sure you can set them straight though.
Checked it out. There aren’t any right wing cowards in hiding to agitate there.
I have to agree - I can’t stand Sean Hannity! He makes me sick!
Comment by crispy&cole
2006-06-01 09:14:35
I have to agree - I can’t stand Sean Hannity! He makes me sick!
_______________________________________________
I think his hand wringing and whining is from all the pressure from attempting to conceal is homosexuality. It seems everyone knows he’s gay except for Sean himself. Or least he won’t admit it.
Anne Coulter too. What planet did she arrive from?
The planet of “all for me, none for you now go be my slave”
I think we are going to continue seeing this “no man’s land” of contradictory statistics, where people can still claim things are “cooling off”, till the end of 2007. Listing inventories may rise, but I just don’t think we are really going to see any substantial number of sellers willing to reduce their prices by much.
In fact, I don’t think many sellers CAN reduce their prices. So many home-owners have extracted all their equity, that they simply couldn’t sell the house without getting a ridiculous price. The price adjustments will only come at the end of a foreclosure process, when the banks need to dump the properties FAST. However, this whole foreclosure process takes time. The current home-owners need to run behind in their payments, and they wait about a year of messing around, and negiotating, with the lender trying to stave off disaster.
We are starting to see foreclosure rates rise now, but we really need MUCH higher numbers to start exerting downward price pressure. I figure it won’t be until about mid-2007 that we see the first big wave of foreclosures beginning, meaning that the auctions would start up at the end of 2007, or in 2008.
Until then, however, we just won’t see home prices drop more than 10% or 15%, too many sellers would just find themselves underwater with price-reductions greater than that.
I’ve got to agree with you on this. I personally know several people in the Sacramento area that are underwater and a couple of them are thinking about selling soon but they have no idea they are in a negative equity situation. Undoubtedly, they will list for a high price because they don’t have much equity and have bought recently, plus they don’t understand current market conditions. Of course, the houses will sit and sit and not sell. Ultimately many of these houses will wind up in foreclosure and that’s where the true price of these houses will be set. Its sad, but it will take quite a bit more time for this mess to unwind.
Darth Toll, your post re friends who didn’t understand the market situation reminded me of a conversation I had this past weekend with a lakefront owner putting his house up FSBO for $1mil this weekend.
He wants to sell while things are “still good”. His family has already staked out their next home in VA. Although he’s a very successful businessman, I’m wondering if he has any idea what’s going on. Thought of sending him this blog link but his wife is so unhappy here I wouldn’t want her to feel trapped….might push her over the edge….ya know.
Saw a segment on CNBC just a little bit ago about housing. Some nimrod cheerleaders were going on about the median price. Their logic was that since the median was still going up people who are waiting much longer to sell are still getting their price. I wish these clowns wouldn’t give sellers false hope like that.
“I figure it won’t be until about mid-2007 that we see the first big wave of foreclosures beginning, meaning that the auctions would start up at the end of 2007, or in 2008. Until then, however, we just won’t see home prices drop more than 10% or 15%, too many sellers would just find themselves underwater with price-reductions greater than that.”
Well, the price decreases would have to stop dead in their tracks and hold for a year. As we blog, 10-15% reductions are common in places like Burbank and other Los Angeles areas. Over one third of Burbank listings are reduced (see Zip). Same in other parts of LA.
Price reductions from already ridiculously articificially set prices, but not 10-15% below either prior sale prices of comps (IMO). We still haven’t seen much of a price dump in LA.
actually, there are many areas of LA that just saw a substantial march to april decline in median home price.
Name names, sources. I am overjoyed but suspicious!
sure. the zip charts. i save them every month.
hmmm my Costa Mesa zip over 400 today for first time—405 to be exact. Same houses been there for many moons… My landlord says he will try to sell my house for $950k (rent is $1400). I am not so worried about having to move…
If you’re landlord was a little sharper, he’d have razed the place and built three or four SFRs on the property. Too late now.
My bad, I didn’t see you’re in a house. I thought you were in a rental complex
Renewed my lease for a year. Great landlord. Maximum skin in the game is very reasonable. I can wait as long as it takes, and quite comfortably at that. Sensible renters are not sweating.
Ditto here.
You got that right buddy. No nightsweats over a 500K NAAVLP mortgage here!
Those who are headed for bankruptcy would be well advised to make sure their income is below the state median. Otherwise, they will be paying off thier debts for the next five years. Also, the new ‘guidance’ for the bankruptcy courts would indicate that people in CA will need to be sharing their one bedroom Apt. with about 4 other people cause they aren’t giving much of an allowance for living expenses.
that is easy to make.
Either husband/wife resign job before filing, with household media at 55K, they for sure will fall below the median with one income!
or divorce is another option
Got to eat ramen noodles till bankrupsy is settled , but get to write off all the debt.
OT: I plotted all the latest OFHEO data released today:
http://www.housedata.info