The news media reported yesterday that the NAR’s Pending Home Sales Index for December was a huge miss, falling far short of economists’ consensus expectations. This was based on the seasonally adjusted data, which is frequently misleading because the statistical manipulation often obscures the real trend. I reviewed the actual, not seasonally adjusted data. It was at the low end of the growth trend of the past 2 years, but still up 4.9% year to year. The month to month drop was slightly greater than normal for December, but is was not a significant deviation from the trend. Therefore, calling it a “huge miss” was misleading.
Some observers attributed the lower than expected number to sharply lower inventories of properties for sale. That may have been a factor contributing to suppressing sales. Inventories were down 170,000 units or 21.6% between December 2011 and December 2012. They were down 1.7 million units or 48% since December 2007. The December inventory to sales ratio of 6.8 is the lowest for December in the data going back to 2005 at the peak of the bubble. So the excuse about low inventories being the cause of slower sales growth may have some validity. But in the big picture, sales continue on a trend of slow but steady increases since the 2008 bottom. This year’s gain is consistent with the increase in sales contracts of 22% since December 2007, which was the low for contract volume during the crash.
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