Are Home Sales About to Follow Home Prices?

March 2, 2011 (Chris Moore)
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The National Association of Realtors (NAR) reports that pending home sales declined in January for the second month in a row. NAR’s Pending Home Sales Index declined 2.8 percent to 89.9 from a downwardly adjusted 91.5 in December on a scale where 100 reflects home sales in 2001. The figure reflects signed contracts and not closings for home sales, and is an indicator of future sales activity in one to two months.

“While home buyers over the past two years have been exceptionally successful with historically low default rates, there is still an elevated level of shadow inventory of distressed homes from past lending mistakes that need to go through the system,” Yun said. “We should not expect the recovery to be in a straight upward path – it will zig-zag at times.”

January’s figures represent a 1.5 percent annual decline from January 2010, which NAR notes was when sales were being supported by the homebuyer tax credit then in effect. Overall, NAR is predicting an 8 percent increase in home sales in 2011.

Overall, the index reports that all markets show year-over-year declines with the Northeast declining 2.4 percent to 73.5 in January, which is 3.0 percent below January 2010. In the Midwest the index fell 7.3 percent in January to 78.0 and is 3.2 percent below a year ago. Pending home sales in the South rose 1.4 percent to an index of 97.7 but is 0.4 percent below January 2010. In the West the index fell 5.2 percent to 98.7 and is 0.9 percent below a year ago.

NAR’s current methodology used to generate some of its housing reports recently came under fire from real estate data and analytics firm CoreLogic.

CoreLogic claims that NAR’s data, which CoreLogic refers to as “the most popular measure of existing home sales,” is exaggerated by 15 percent to 20 percent. The accusation came to light when CoreLogic released its existing home sales report showing that total sales for 2010 was 3.3 million units compared to NAR’s claim that 4.9 million units had been sold.

NAR responded by claiming they “looked into CoreLogic’s methodology and we think they’re numbers are off.”

Both organizations agree that the issue lies in the methodology each uses and both agree that there can be holes in any approach used.

NAR is expecting to release revised data for the last three years in the coming weeks…it should be interesting to see what they have to say.

Tags: NAR, pending home sales, default rates, shadow inventory, homebuyer tax credit, housing reports