Interest Rate Roundup

Tuesday, October 02, 2007

Pending home sales tank

The National Association of Realtors just released data on pending existing home sales for August. This data series tracks contract signing activity vs. contract closings (which is what the regular monthly sales data tallies). That makes it a leading indicator for future closed sales. Not surprisingly, given what we know about the mortgage market in August, the pending sales data stunk up the joint ...

* Pending sales fell 6.5% between July and August, a much bigger drop than the 2.1% decline forecast by economists.

* The decline left the pending home sales index at 85.5. That was down 21.5% from a year ago and the lowest on record. The NAR has pending sales data going back to 2001.

* Pendings fell in all four regions of the country -- down 8.3% in the Northeast, down 2.9% in the Midwest, down 9.5% in the South and down 2.7% in the West.

The latest figures show the existing home market wilted under the August heat. Some potential buyers found they couldn't qualify for mortgage financing because of tighter lending standards. Others probably got cold feet after seeing their neighbors have so much trouble selling their homes. That kept the pressure on sales.

So what about the future? Well, we won't know for a while whether the Fed's recent rate cut has helped get the housing market 'unstuck.' The mortgage market is showing tentative signs of stabilizing. But the days of super high risk mortgage financing are gone for a long, long while -- and the inventory of homes for sale is still off the chart. So even if sales activity stabilizes or bounces a bit this fall, a lasting rebound in housing isn't likely until late 2008 or 2009.


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