The NAR’s Pending Home Sales Index was 128.5 in June versus 131.1 in May, not seasonally adjusted, in other words, actual. That was equivalent to the sale of 501,000 units based on a simple algorithm which I have used for the past 9 years to convert the Realtors’ Pending Home Sales Index to an equivalent number of actual sales contracts. This represented a decline of 10,400 units from May, apparently due to the rise in mortgage rates.
The seasonally adjusted headline number was down 0.4% month to month versus market expectations of a decline of 1.4%. In spite of the “beat” most news reports on the data had a dour tone. For example, Bloomberg blamed the early drop in stock prices on Monday on the decline in pending home sales. The Wall Street Journal said that rising mortgage rates “pinched” home sales.
Closer examination of the data reveals a more nuanced picture where there was no material change to the trend.
Contract volume was up by 10,700 or 8.2% versus June 2012, which was slower than the May gain of 11.2%, but it was similar to the year to year gain of 8.4% a year ago and stronger than the gain in four of the past seven months.
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While there was a downtick in June, it was not enough to break the trend of increasing sales. The data does not support all the moaning and groaning that rising mortgage rates have caused a material slowing in the rate of sales (see US Housing Prices Within 7% of 2007 High – That’s Not A Bubble?). Considering that 30 year fixed rate mortgages were at 4.07%, versus 3.68% in June 2012 according to Freddie Mac, the continuation of the uptrend in sales attests to the strength of demand. Apparently buyers have been motivated to buy to beat both rapidly rising prices and rising mortgage rates, both of which they apparently believe will continue. This is a dynamic I have seen many times over my 30 years of experience in or analyzing the housing market. At some point rising rates will crush demand. We’re not there yet.
Much of the rise in rates had already occurred by May, and there was no sign of a slowdown in demand in the May contract data. The bubble was still going strong at that time. The June data doesn’t change that. Inventories remain extremely tight. They show no sign of any meaningful loosening. The factors that drive the tight supply remain in place.
Departmentofnumbers.com reports median listing prices and inventory for 55 large US metros in real time. As of July 22, total inventory was down 10.7 % year to year in these markets, which are representative of the US as a whole, suggesting that the tightening of inventories is continuing.
The NAR’s Realtor Confidence Index Report for June showed a downtick in buyer traffic but it remained at a very strong level, well above that of June 2012. Seller traffic upticked but remained within the post crash range, no better than during the 2008 crash. The crossover of the two lines on the graph below coincided with the beginning of the upturn in housing prices. The tight inventory situation that has been driving the rapid inflation in housing prices over the past two years is unlikely to ease until the gap between buyer and seller traffic comes closer to being in balance.
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