Pending Home Sales Decline in December, Remain Above a Year Ago

Pending home sales fell off of the
19-month high reached in November according to figures released on Wednesday by
the National Association of Realtors® (NAR), but were still higher than one
year ago.  NAR’s Pending Home Sales Index
(PHSI) dropped from 100.1 in November to 96.6 in December, a decline of 3.5 percent.  December pending home sales were still 5.6
percent above the December 2010 index of 91.5.

The PHSI is a measure of signed
sales contracts for home purchases where the transaction has not closed.  It is considered a forward indicator as the
sale is usually finalized within one or two months of contract signing.  An index
of 100 is equal to the average level of contract activity during 2001.

Lawrence Yun, NAR chief economist, said the trend line remains
positive.  “Even with a modest decline, the preceding two months of
contract activity are the highest in the past four years outside of the
homebuyer tax credit period,” he said.  “Contract failures remain an
issue, reported by one-third of Realtors® over the past few months,
but home buyers are not giving up.”

Yun said some
buyers successfully complete the sale after a contract delay, while others stay
in the market after a contract failure and make another offer.  “Housing
affordability conditions are too good to pass up,” he said.  “Our hope is
lending conditions will gradually improve with sustained increases in closed
existing-home sales.”

On a regional
basis results were mixed with three regions showing increases on a year to year
basis but only one increasing during the December.

Pending Home Sales by Region

Region

Index in

December

Chg Nov to
Dec.

(%)

Chg Dec.
2010 to

Dec. 2011
(%)

Northeast

74.7

-3.1

-0.8

Midwest

95.3

+4.0

+13.3

South

101.1

-2.6

+4.9

West

107.9

-11.0

+3.7

U.S.

96.6

-3.5

+5.6

NAR also issued an economic forecast which predicts a healthy growth in
both real and nominal GPD over the next two years with real GDP growing in a historically
normal range of around 3 percent and the unemployment rate falling under 8
percent by 2013. 

Housing starts are expected to improve to around 750,000 in 2012 and
reach a million the next year – both figures well below the historically
typical 1.5 million.  Housing sales, both
new and existing, will remain relatively flat with new home sales reaching a
half million by the end of 2013.  
Existing home sales are estimated to have totaled 4.26 million in 2011
and will rise gradually to 4.45 million and 4.62 million in 2012 and 2013
respectively. 

Inventories are not projected into the future, but the supply of existing
homes is trending down and is now around 2.25 million.  The inventory of new homes has declined to a
nearly negligible level, however given the pace of sales, both inventories
represent about a six month supply.

NAR expects
median prices of both new and existing homes to rise only slightly from current
levels of$223,400 and $166,100 during 2012 but will rise more rapidly during
2013 to a median level of $235,800 and $172,600 by year end.

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Freddie Mac: Speedy Recovery Seems Unlikely in 2012

“Perspectives on the housing market
depend on where you sit,” according to Freddie Mac’s U.S.
Economic and Housing Market Outlook

for January.  The monthly forecast noted
that existing home sales increased in November, the inventory of unsold homes
decreased to a six to seven month supply, and Freddie Mac’s economists predict
home sales will grow between 2 and 5 percent in 2012. 

But
there is “a historically large gap between sentiments of buyers and sellers.”  Nearly 80 percent of American households
believe it is a good time to buy a home, but sellers are not as happy, with
only 7.6 percent who responded to a Mortgage Bankers Association survey
believing that it is a good time to sell. 
If this gap doesn’t narrow, Freddie Mac’s economists say, the
housing-market recovery will be delayed.

The monthly report titled Toasting the New Year with a Glass Half Full
concludes that, while the economy is undoubtedly in a better place that the
same time a year ago, a speedy recovery still seems unlikely this year. 

Other highlights of the Outlook

  • Economic growth will likely
    strengthen to about 2.1 percent in the first quarter.
  • The current U.S. unemployment rate
    of 8.5 percent is likely to increase after seasonal gains are reversed.
  • Mortgage rates are projected to
    remain very low, at least in the beginning of 2012.

Frank Nothaft, Freddie Mac, vice
president and chief economist said, “With the new year comes a sense of
cautious optimism. There are some positive signs in the job market and consumer
confidence; housing is starting to raise hopes for continued gradual economic
recovery. But the economy still is giving some mixed messages.”

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Pending Home Sales Rise; NAR Sees Tight Inventory Leading to Price Increases

Pending home sales in May bounced
back to match March numbers which were the highest seen in two years. The
improvement was broad-based, affecting every region in the country according to
the National Association of Realtors® (NAR). 

NAR’s Pending Home Sales Index (PHSI)
rose 5.9 percent in May from 95.5 in April to 101.1, equaling the index level last
March.  This was an increase of 13.3
percent from May 2001 when the index was 89.2. 
The last time the PHSI was higher than the March and May number was in
April 2010 when buyers were rushing to beat the deadline for the home buyer tax
credit.

The PHSI is a forward indicator
reflecting signed contracts for home purchases. 
The index does not include closing transactions which are generally
expected to occur within 60 to 90 days.

Lawrence Yun, NAR
chief economist, said longer term comparisons are more relevant.  “The
housing market is clearly superior this year compared with the past four
years.  The latest increase in home contract signings marks 13 consecutive
months of year-over-year gains,” he said.  “Actual closings for
existing-home sales have been notably higher since the beginning of the year
and we’re on track to see a 9 to 10 percent improvement in total sales for
2012.”

The national
median existing-home price is expected to rise 3.0 percent this year and
another 5.7 percent in 2013.

On a regional
basis, May pending sales in the Northeast increased 4.8 percent to 82.9, 19.8
percent above May 2011.  The pending sales number in the Midwest was 98.9
up 6.3 percent from April and 22.1 percent from a year ago.  The index for
the South increased 1.1 percent month over month and 11.9 percent year over
year to an index of 106.9.  In the West
the index jumped 14.5 percent in May to 108.7 and is 4.8 percent stronger than
a year ago.

Yun said that
low inventory could negatively impact some contract activity.  “If credit
conditions returned to normal and if we had more inventory, especially in the
lower price ranges, more people would become successful buyers.  In an
environment of historically favorable housing affordability conditions, it’s
frustrating to see some consumers thwarted in the process,” he said.

The low
inventory in some cases is because of the numbers of homeowners who are unwilling
to list their homes for sale because they are underwater on their mortgages.  Selling underwater homes requires that sellers
either bring cash to the table or undergo a lengthy and often frustrating short
sale process.  NAR estimates 85 percent
of homeowners have positive equity, with 15 percent in an underwater situation.

“Low inventory
can be cured by increasing new home construction,” Yun said.  He projects
housing starts to rise by 26 percent this year and another 50 percent in 2013.  “If housing starts do not rise in a meaningful
way over the next two years due to the difficulty in getting construction
loans, and barring an unexpected shift in the economy, the steady shedding of
inventory could lead to shortages where home prices could get bid up close to
10 percent in 2013,” Yun said.

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On the Bright Side, Housing Isn’t Getting Worse

Today’s housing data offer another a muddled view of the recovery.

Tight Supply Drives Existing Home Prices Higher

Sales
of existing homes
fell in May, but that decline may have been due to a lack of
available homes rather than a lack of demand. 
According to the National Association of Realtors® (NAR), total existing
home sales including single family homes, townhomes, condominiums, and
cooperative apartments, declined 1.5 percent to a seasonally adjusted annual
rate of 4.55 million in May from 4.62 million in April.   Sales
were up 9.6 percent from the 4.15 million sales pace in May 2011.  The national median existing-home price3 for all housing types rose 7.9 percent to $182,600
in May from a year ago, the third consecutive month of year over year price
gains.

The
total inventory of homes for sale at the end of May was down 0.4 percent to
2.49 million existing homes, a 6.6 month supply at the current sales pace.  One year ago there was a 9.1 month supply and
at a cyclical peak in July 2010 the inventory stood at a 12.1 month supply.

Existing Home Sales

Click Here to View the Existing Homes Sales Chart

Lawrence Yun,
NAR chief economist, said inventory shortages in certain areas have been
building all year.  “The slight pullback
in monthly home sales is more likely due to supply constraints rather than
softening demand.  The normal seasonal
upturn in inventory did not occur this spring,” he said.  “Even with the monthly decline, home sales
have moved markedly higher with 11 consecutive months of gains over the same
month a year earlier.”

Yun said properties in the
lower price ranges are in short supply in much of the country outside of the
Northeast.  Real estate agents in western
states have been calling for an expedited process to get additional foreclosed
properties on the market to alleviate shortages and much of Florida is in a
similar situation.

Sales of single family homes
were down 1.0 percent to a seasonally adjusted rate of 4.05 million from 4.09
million in April.  This is 10.4 percent
above the 3.67 rate of sales one year earlier. 
Condo and co-op sales were down 5.7 percent to a rate of 500,000 from
530,000 a month earlier but are 4.2 percent higher than a year earlier.

The median price for a single-family
home was $182,900, an increase of 7.7 percent from May 2011 while the median
condo price saw an annual increase of 8.8 percent to a median of $180,000.  “Some of the price gain results from a
shrinking share of distressed homes in the sales mix,” Yun explained.

Foreclosures accounted for 15 percent of
sales in May and short sales for 10 percent. 
This 25 percent share is down from 28 percent in April and 31 percent in
May 2011.  Foreclosures sold for an
average discount of 19 percent below market value in May, while short sales
were discounted 14 percent.

First-time buyers accounted for 34
percent of purchases, down from 35 percent in April and 26 percent in May 2011.
 Investors purchased 17 percent of homes,
down from 20 percent in April and 19 percent a year earlier.  All-cash sales represented 28 percent of
transactions compared to 29 percent and 30 percent in the earlier periods.

NAR President Moe Veissi said there are reports
of multiple offers and quick sales in areas with a tight supply of housing and
of competition between first-time buyers and cash investors.  He advised buyers to continue to perform due diligence
and make offers with appropriate contingencies as they would in a more balanced
market.

Regionally, existing-home sales in the Northeast fell
4.8 percent to an annual level of 590,000 in May but are 7.3 percent higher
than May 2011.  The median price in the
Northeast was $250,700, up 3.8 percent from a year ago.

Midwest sales rose 1.0 percent to a pace of 1.04 million,
9.5 percent above a year ago.  The median
price in the Midwest was $147,700, up 6.4 percent from May 2011.

Sales in the South were down 0.6 percent to an annual level
of 1.78 million but are 9.2 percent
higher May 2011. 
The median price in the South was $159,700, up 7.8 percent from a year
ago.

Existing-home sales in the West declined 3.4 percent to
an annual pace of 1.14 million in May but are 3.6 percent above a year ago.  The median price in the West was $233,900, up
13.4 percent from May 2011.  “The sharp
price increase in the West results largely from more sales at the upper end of
the market,” Yun explained.

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