According to CNBC this morning, Housing Market Is Showing Signs of a Turnaround:
Pending sales of previously owned U.S. homes unexpectedly rose in April to the highest level in six months as foreclosed properties flooded the market and drove prices sharply lower, a real estate trade group report showed.
The National Association of Realtors Pending Home Sales Index, based on contracts signed in April and seen as a key barometer of future housing activity, increased 6.3 percent to 88.2 from an unrevised 83.0 in March.
Despite the uptick, sales were 13.1 percent lower than a year ago.
There are two problems with this report. The first is that pendings are down year-over-year, not up. Year-over-year is more significant than the more volatile month-to-month comparison. More importantly though, I believe that pendings should no longer be considered as a "key barometer of future housing activity."
In 2005 when the National Association of Realtors started tracking pending sales, pendings were a good indicator of future sales. Pending sales generally closed within 30 days, which made it easy to see what would be happening the next month. The world has changed, however.
Homes can remain pending for months now as would be buyers scramble to sell homes or find financing. Often buyers need to give up entirely, so more pendings are being cancelled than during the boom years.
Pending sales numbers are given as an "index" rather than number of sales [as in the Existing Sales report], so a good "apples to apples" comparison is difficult. However, it is possible to compare the slope of both pendings and sales. It is clear that the spread between the two is increasing and the correlation is decreasing.
