Pending Home Sales Decline Points to Weak Recovery, Not Crash


Will penidng sales cause the housing market to tank?Pundits warn of a new housing crash after a tiny number of people signed contracts to buy homes in June, according to the Pending Home Sales Index kept by the National Association of Realtors.

The seasonally-adjusted Index sank to 75.7 in June. That's down slightly from May, and down steeply from April and March, when buyers rushed to take advantage of the federal homebuyer tax credit.

"Hell has broken loose all over again in real estate. Don't buy a home. Sell one," said commentator Michael David White at HousingStory.net.

However, if you look closely at the numbers, the Pending Home Sales report seems less like a sign of impending doom and more like all the other economic headlines you've been reading, pointing to continued weakness and a wimpy recovery.
The Pending Home Sales numbers have a big problem: The index is adjusted downward by U.S. Census officials to account for the usual summertime rush to buy homes -- but economists at Standard & Poor's point out that extremes of the last three years have made a mess of the math behind seasonal adjustments.

To really see what is going on, ignore the seasonal adjustment and focus on comparing this year's unadjusted index with last year's. This year, without the seasonal adjustment, the Pending Home Sales Index peaked just before the tax credit deadline at a stunning 133.4 in April, up 24 percent from the year before. In June, without the adjustment, the index crashed back to 92.9, down 20 percent from the year before. Taking together, the springtime boom and and the summertime bust add up to a very slight overall improvement.

Hardly a crash -- but hardly great news. Of course, to crash an object generally needs to be moving. For example, it's hard to crash a parked car. Our housing market has been stalled for the last year. Sure, home prices have risen slightly over the past 12 months. But the increase is small -- 4.6 percent as of May, according to the latest Case-Shiller 20-City Index.

That increase only looks steep to people who expected values to drop. And most of the increase happened last summer, when it still seemed slightly possible that the economy might come roaring back to life. Home prices have been more or less flat for the last seven months, according to Case-Shiller.

Pessimists like White say foreclosures will strike our stalled housing market and force prices down so steeply that you should sell your home right now -- before it's too late.

But foreclosure actions already have been striking continuously for the last year, at record rates of roughly a third of a million a month, according to research firm RealtyTrac. That's so high that it begins to strain credibility and common sense to claim that the rate can get tremendously worse. For the rate to double, there would have to be well over 600,000 foreclosure actions a month. Barring some unexpected new economic apocalypse -- in addition to all the bad news we've already suffered through -- that's not going to happen.

Instead, the consensus among economists is that the housing market will continue more or less as it has been, as record-high foreclosures and a weak-but-stabilizing job market square off against historically low interest rates, to keep home prices treading water.


More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Get property tax help from our experts.


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