Opinions and insights from real estate broker Rick Bosl

Just one week after reports of Existing Home Sales and New Home Sales plunging, the housing market is signaling that auturm may fare better than did summer.

The number of homes under contract to sell rose 5 percent in July.

The data comes from the July Pending Home Sales Index, as published by the National Association of Realtors®. By definition, a “pending home sales” is a home that is sold, but not yet closed.

Historically, 80% of such homes close within 60 days which makes the Pending Home Sales Index an excellent, forward-looking indicator for the real estate market.

Indeed, the nationwide drop in home sales this summer was foreshadowed by the Pending Home Sales report.  The index dropped 30 percent in May. Then, two months later in July, it was shown that Existing Home Sales volume dropped 29 percent.

That’s a strong correlation.

Now, to be fair, the July Pending Home Sales Index is still relatively low; the second-lowest on record and well below last year’s numbers. But, the tick higher last month shows how housing may be stronger than than what the headlines report.

It appears that buyers took advantage of rising inventory, cheap financing, and stagnant prices, and pushed the market forward. We should expect similarly promising numbers when September’s Existing Home Sales data is released.

The number of home resales plunged by 1.4 million units in July, according to the National Association of Realtors®’ Existing Home Sales report.

It’s a drop of 27 percent from June; single-family home resales are at the report’s lowest levels since May 1999.

Furthermore, because of the sharp drop in sales volume, home inventories are spiking.

Homes for sale nationwide fell just short of 4 million units in July and, at the current sales paces, it would take 12.5 months for the existing inventory to be absorbed.

Home supply was just 8.9 months in June.

For home sellers , the Existing Home Sales report is a bit of bad news.  Fewer sales and larger inventories put negotiation leverage in the hands of the buyers which, in turn, creates downward pressure on home prices.  It may also increase time-on-market.

For home buyers, however, the data is decidedly welcome. After a stimulus-driven spring buying season that favored sellers, the summer and early-fall market seem to favor buyers. More choices and more leverage is a positive.

It helps that home affordability is up, too.

Although there’s reports that home values are rising, their modest gains are more than countered by the ongoing rally in mortgage rates. Freddie Mac says that 30-year fixed rate mortgage rates are at their lowest levels in history and, at today’s rates, every one-eighth drop in mortgage rates roughly offsets a 1.5% increase to home price.

Mortgage rates are down 0.75 percent since mid-April.

One month after the federal homebuyer tax credit’s official expiration, the New Home Sales report turned in its worst showing ever.

In May 2010, for the first time in 11 months, the inventory of unsold new homes crossed the 8-month marker, posting an 8.5 month supply overall.

Additionally, new homes sales volume fell to 300,000 units nationwide — a drop of 32% and its lowest level since the Commerce Department started tracking data in 1963.

Now, universally, the press is referring to the May New Home Sales report as “poor“.  A closer look, however, shows that may not be the case.

For one, we have to keep New Home Sales in perspective as a percentage of overall home sales. Yes, there were just 300,000 new homes sold in May, but there were also 5.66 million “existing” homes sold.

New Home Sales, therefore, accounted for just 5 percent of the total housing market — a very small percentage.

Another reason why the weak New Home Sales data isn’t so awful is that, when New Home Sales stall, it actually benefits home buyers.  Excess supply puts a strain on sellers which, in turn, gives buyers a tremendous amount of leverage in negotiation.

When home inventories are high, builders are more apt to appease their customers in hopes of making a sale.  For home buyers, this can result in buying a better product at a lower price.

Especially with builder confidence plummeting.

Since February 2009, housing has shown steady gains. There’s been both peaks and valleys across units, inventories, and prices, but overall, the market is improving.  May’s New Home Sales data shows how now may an opportune time to “buy new”.

The winter months have not been kind to home sales.

After plunging 17 percent in December, Existing Home Sales fell by an additional 7 percent in January, according to the National Association of Realtors®. An “existing home” is a home resold by a previous owner (i.e. not new construction).

In looking at the annualized, adjusted Existing Home Sales data, we find:

1. Sales volume is at its lowest levels since June 2009
2. Sales volume fell below its 12-month rolling average
3. Home supplies are at a 5-month high

These are similar findings to the New Home Sales data issued by the government last week.  That report put new home sales at a 40-year low and showed new homes supplies higher by an entire month.

But don’t think housing rebound has halted! Home sales are cyclical and there are outside forces on today’s market.

For one, the market is still feeling the after-effects of the original First-Time Home Buyer Tax Credit. Sales spiked in the months leading up to the original November 2009 expiration date. A pull-back is natural and expected.

Looking at the long-term trend, Existing Home Sales volume appears right in line.

Furthermore, weather across much of the U.S. was awful in January. That, too, can impede home sales as homes are neither shown nor negotiated when weather is majorly inclement.

Anecdotal evidence is showing sales activity higher through February and into March. And, although it’s unlikely we’ll see a spike through April like we did last November, buy-side demand for homes should remain strong. The good news of the sagging sales reports is that today’s buyers may find home prices are lower and sellers are more willing to negotiate.

Posted by Rick Bosl on March 02, 2010 | Tags: Existing Home Sales

Just one month after from blowing away Wall Street, December’s Existing Home Sales hit the skids, shedding nearly 17 percent and falling to a 4-month low.

Don’t be alarmed, though. The plunge was expected. And not just because Pending Home Sales cratered last month.

When November’s Existing Home Sales surged, it was clear to observers that an expiring $8,000 federal tax credit was the catalyst. At the time, the tax program was slated to expire November 30 and the looming deadline pushed a lot of would-be buyers from a December time frame into November.

The expiration date has a cannibalizing effect on December’s sales figures. It was only later that Congress extended the tax credit to June 30, 2010.

So, with home sales plunging in December, it’s no surprise that home supplies rose for the first time in 9 months.  Home Supply is calculating by dividing the number of homes for sale by the current sales pace.

The national housing supply now rests at 7.2 months.

Despite December’s Existing Home Sales report appearing shaky, it’s actually terrific new for home buyers.

See, for the past few months, as housing has been improving, sellers nationwide have been bombarded by messages of “hot markets” and rising home prices by the media.  Psychologically, a seller is more likely to hold firm on price if he believes the housing market is improving and now December’s data is deflating that argument.

This is why we say there’s always two sides to a housing story — the buyers’ side and the sellers’ side. And, usually, what’s good for one party is bad for the other. It’s what we’re seeing now.

Because of soft data like December’s Existing Home Sales, buyers may retake some negotiation leverage that’s been lost since Spring 2009, helping to improve home affordability and, perhaps, spur more sales.

Posted by Rick Bosl on January 26, 2010 | Tags: Existing Home Sales