Pending Home Sales For November 2009 Plunge 16%, Worse Than Expected

The National Association of Realtors® (NAR) released its Pending Home Sales Index for November 2009 today. Pending sales fell 16.0% from the prior month.

The index had increased each of the previous 9 months, and was expected to fall in November due to the originally scheduled end of the First-Time Home Buyer Tax Credit. However, the decline was larger than most economists had expected. Nonetheless, the index is still 15.5% higher than in November 2008.  

Economists had been expecting a decline in sales as the November 30th end of the Home Buyer Tax Credit approached, because buyers would not have enough time to buy and still close by November 30th. The Home Buyer Tax Credit has since been extended and expanded. President Obama signed the extension on November 6, 2009.

 

 NAR Chief Economist Lawrence Yun pointed out that home closings still could decline in coming months: “It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit.”  He added that “We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.”

Actually, the decline in Pending Home Sales for November is not that far off the previously announced monthly decline of 11.3% in New Home Sales for November.

However, the pattern of activity was different. New Home sales by geographical area were: Northeast, down 3.3% (Pending Home sales were down 25.7%.); Midwest, up 21.4% (Pending Home sales were down 25.7%.); South, down 21.1% (Pending Home sales were down 15.0%.); West, down 9.2% (Pending Home sales were down 2.7%.).

Pending Home Sales were down the most in the Northeast and the Midwest and the least in the West.

New Home Sales were down most in the South, down the least in the Northeast, and were even up in  the Midwest.

We have no idea why existing homes and new homes should sell at such different rates in the various geographic areas. Anybody have a guess?

In a earlier post in Housing 101, we theorized that there seems to be some constraint developing on New Home Sales due to the continually falling inventories of homes in the most popular lower price ranges. (In other words, there aren’t enough homes available for sale to support a higher rate of sales.)

We think that what will happen next is that, as the price range of existing homes sold continues to creep up, existing homeowners who sell their homes will be freed up to buy the higher-priced new homes that are still sitting in inventory. Sales of lower-priced new homes will slow due to a shortage of available inventory, and sales of higher-priced new homes will rise, sharply skewing up the increase in average new home sales prices over the next several quarters.

The number of new homes sold will have roughly flat month-over-month comparisons during this period. However, the year-over-year comparisons should be robust because of the very low sales rate during the first few quarters of 2009.

We pointed out in a previous Housing 101 post that we also think that the Case-Shiller Housing Price Index will begin to report year-over-year price increases starting with the January, 2010 report that will be released in March, 2010. The reason for the coming increases is that the sharp monthly price decreases reported at the end of 2008 will drop out of the annual calculations and be replaced with slowly rising monthly prices in early 2010.

See the full report: http://www.realtor.org/press_room/news_releases/2010/01/pending_surge