Pending Home Sales Number NOT Positive – Explained

Posted on August 7th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

June Pending Home Sales were up!  Not really. They were at near the same level in April, took a dip in May and went back to April’s level in June (see chart below).  June is one of the best sales months of the year and April is not.  June pendings only being flat from April is a very bad sign of actual future sales.  From April ro June the number should have soared. Even not-seasonally adjusted the numbers were statistically insignificant. In addition, last months numbers were revised lower.

Seasonality is so important to factor into any data that comes out. Come Sept the selling season is over, people have moved and kids are going back to school. You had better accept any reasonable offer presented in July if you plan to sell your home before the end of the season. In addition, so many are looking for a short sale and in those cases, they don’t necessarily care about the price, just getting the deal done before demand dried up or they go into default or foreclosure.

Other than the above, there are a few other small problems with this data release that you have to keep in mind. 

Home sales and pending home sales rising and prices falling is a bad thing. This is because for every person who gets a ‘deal’, perhaps 100 people with similar homes in the area have their home value slashed, putting them into an even deeper negative equity position and at an exponentially great risk of loan default. Remember, negative equity is a leading contributor of loan default. Today’s report showing prices falling tells me that a certain percentage were pushed over or ever closer to the default cliff.

When 40-50% of all sales come from the foreclosure stock, it is a bad thing because it drowns out the ‘organic’ sales (you and I) and does not clear organic existing inventory, which leads to loan default. (Please see my June Home Sales Report). Remember, only defaults on subprime are dropping but Alt-A and Prime defaults are climbing filling the void quickly. Pay Option ARMs are just beginning to implode and their hard-resets do not peak until Dec 2009 (Please see my most recent Option ARM report). In order to chew through inventory you have to sell more homes and have fewer new foreclosures. That is not happening to any great degree.

In a nutshell, in June this report showed pending home sales:

  • rising slightly month-over-month
  • flat from two months ago
  • way down year-over-year
  • prices continuing to crash

Remember, defaults and foreclosures have leveled off temporarily at historic highs and will likely increase once the selling season ends in Sept.

When it comes to home sales you have to look year-over-year and not month-over-month.  But even when you do look year-over-year, 2007 was such an anomaly you have to discount it sharply. This is because not only had values not come down very much from the all-time highs but there was also a lack of affordable exotic loan programs so widely used when prices were high. 

If you remember, the banks started doing away with low doc, low down payment, pay option arms, HELOCs to 100% etc in May/June/July of last year. Sales were unusually weak due to circumstances that can never repeat. Sales were so weak in 2007 due to near-peak high prices, a lack of financing and overall confusion in mortgage finance, you need to compare to 2006. From 2006 through June 2008, Pending Home Sales are down very significantly.  Take out the foreclosure resales and they have been cut in far more than half.

Lastly, many of the ‘pendings’ are short sales, which will never get approved. As a matter of fact, a study just came out of Santa Clara county, CA showing that between Sept 2007 and the end of March 2008, 2700 short sales were applied for and 77 approved. Perhaps it has gotten better since but I have no data on that. How many of today’s ‘pendings’ will never close because the short sale approval does not go through?

In a nutshell never read the headlines. The Pending Home Sales data set is absolutely irrelevant in this marketplace with so many wild cards and should be scrubbed immediately. – Best, Mr Mortgage

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  • 42 Responses to “Pending Home Sales Number NOT Positive – Explained”

    1. Mr. M,

      What are you talking about?? Now this guy hits the nail on the head!!

      http://www.cnbc.com/id/26073558

      Kidding…completely kidding. He even thinks we’re on the way to inventory reduction and makes no mention of the wave of coming defaults.

    2. Great analysis as usual, Mr. M!

      Excuse me if this is a naive question: but, as pressure on te bans build and as they are (slowly) waking up to (some of) the realities of today’s markets, don’t you think that approvals of short sales (both in absolute and percentage terms) will start to rise?

    3. Do not be too negative Mr. M or you risk losing credibility – you and I both know that short sale approvals even those with piggy back seconds are getting approved at a realtively astounding rate for the past two months. Make sure and give that some press – agents, sellers, bankers and buyers need to know that there is hope and banks are finally getting smart. Well, ok maybe THAT is an overstatement. They ARE approving shorts they would not even consider 3 months ago though.

    4. […] Mr. Mortgage breaks down today’s housing numbers. They’re not as good as you […]

    5. Re: Paul, you would think short sales would be approved huh? Guess again. I’m not sure if lenders and MI groups will wake up in time.
      As first time homebuyers, we had a short sale offer (we were the 3rd one since the end of March) that ended up not getting approved last month. The MI group demanded a promissory note, the seller said no, the entire deal was canceled and the listing was removed. Fortunately we went into escrow for an REO the day before the cancellation.

    6. Everyone keeps saying the drop in prices is bad. This is wrong, Price drops are good. Good for you. Good for me. Good for the economy!

    7. Sorry Bud, but I did not even read the article. I am too busy having my biggest production month ever. The title says it all and I could not dis-agree more.

      What we are seeing here, and in many other states, including yours, is a massive influx of purchases. I expect to see next month’s national numbers to be way better than expected.

      Everybody I know at title companies, appraisers and investors is absolutely covered up.

      The cloud in the middle of every silver lining approach is getting a bit worn out.

    8. PS Just about every State in the Union is already bankrupt – or will be soon! Check out NY and CA, just for starters.

    9. The collective Voice of America is about to proclaim:

      NEVER AGAIN!

    10. I love it so! – when all Recent Comments are mine. 😉

    11. Well of course mortgage people are busy, Mortgageman85! There’s only like 5-10 of them who haven’t been laid off in the whole country and they’ve got to handle all the sales themselves!

    12. Eternal, are you an islamofacist or what?

      Me, I am about as big a Texas redneck as you have ever seen. Strict baptist upbringing, 4WD Suburban, lots of guns and fishing gear.

      Linda,

      I have been self employed for 15 years. I had enough of that layoff BS from the S&L days.

      I have stopped trying to be positive on most of these posts, so I say, go ahead and quit! The world is ending, no more mortgages and Obamas is the second coming of Christ.

      LOL, Daddy needs a new pair of shoes.

    13. much of the surge is related to FHA downpayment assistance program……which as you know is about to expire as of Sept. 30.

      98% of my purchase appraisals are FHA.

      dont forget, REGARDLESS of outside market forces there is STILL a seasonal demand factor that occurs in late Spring.

      Post Bear Stearns surge suckered alot of buyers in only to get slaughtered in June.

      want the best guage for market movement?……

      follow the movement of MEDIAN “LIST PRICES” not sale prices.

      one can follow all the indicators in the world and doesnt matter.

      until Median Income Levels begin to rise
      DO NOT BUY RESIDENTIAL REAL ESTATE.

    14. FINALLY!!!! CNBC’s David Faber ran a report on PAY OPTION ARMS and the DAMAGE they’ll do. Main Street Media – finally covers this story we’ve all known about for a long time. Mr. Mortgage, maybe Faber saw your site? Anyway, thanks for being MONTHS ahead of these pundits and analysts who don’t know sh…! Great video to watch. Go to CNBC and then click on videos. Story ran about 1:40 pm today. Market seemed to tank right after this story ran. Looks like S&P Level of 1284 and 1292 may not be broken on the upside. Who knows. If not, this market is done and new lows are on their way. If those levels are broken – 1321 is next target for resistance. Trade smart. Financials are getting nailed with the Faber report (Mr. Mortgage was first) and the C news. SEC said they’re talking to other firms in addition to C. More write downs and ….. the need for capital. Again, trade smart as the manipulation will now be in FULL FORCE. I wonder what’s next for the gov printing press, and the tax payers burden to pay off more officials and executives in order to stop a train that can’t be stopped?

    15. MM666:

      Is Dubya a Texas ‘redneck’, like you? Contrary to Texan belief, you don’t have to be Jewish to be a Zionist shill! And Cheney, Mr. GFY, he has a gun collection, too – just ask his duck-hunting friends! 😉 So what?!

      Of course, you could well be one of those infamous, swaggering “all hat and no cattle” Texas range-rovers!

      If you’re not a Zionist shill (and don’t even know it), you’re most likely DD&B.

    16. MM666:

      I’m neither an ‘islamofascist’ nor ‘what’. Click on my name and you’ll find out who I am. Of course, it would help enormously if you could connect just 2 tiny dots – but I don’t think there’s enough under your hat to do it. 😉

    17. Optimist, That is some funny stuff, thanks for the chuckles.

      8,000 acres in Throckmorton County with my name on it, and no mortgage. 1200 Beefmasters, 110 Longhorns and some scattered Herefords. It’s free ranging land, we loose quite a few. You are correct, I don’t do the actual work myself though. I just shoot the furry little creatures out there while watching my profits get fatter. Unfortunately, just outside of the Barnett shale or I might actually quit this business. Right now the profits are just too great and I will be fully retired before I turn 50.

      Appraiser,

      Although I do understand there is a significant amout of FHA business out there, I do not touch it. Might be a need for it in some shops, but not mine. I have not seen one single instance where conventional financing was not better for the customer than FHA or VA. The fees are just to great.

    18. MM666:

      As a BBB (Bible Belting Baptist), you should know that you ‘can’t take it with you’ – whether it’s later this afternoon, tomorrow, next week or next month. You should also know that the fat years are followed by the lean years – and you’re about to experience somma da leanest years since da Great Depression (but you’re too young to know about that). One more thing, don’t count your acres or cattle (and whatever else you’re tempted to count) unless they can all find shade under your hat – of course, it might just be big enough! 😉

    19. How about this, MM666: “It is easier for a camel (or one of your cattle) to go through the eye of a needle than for a rich man to enter the Kingdom of Heaven”. Does that bring back faint memories from BBS? (Baptist Bible School) So which kingdom are you headed for, then?

    20. Sorry, admin, but MM666 is leading me astray (off topic)

    21. All sure where I am going, don’t really expect to see you there unless you get some clarification.

      Try this one:

      Rejoice o youg man in thy youth…….

      If you do not know the rest, without looking it up, you should really shut up and go get some more education on the topic.

      Although I am no longer a member of the Baptist church, (I find myself in more agreement with the Methodist doctrine), I do have fond memories of VBS. Don’t realy know where you get the BBS from, you learn that in a mosque?

      Anyway, as you might of guessed, I did go to church 3 times a week as a child. That, accompanied with my 12 (college) hours of theology have enlightened me thouroughly. I really do not subscribe to the rantings of Reverend Wright either. Is that your church today?

    22. Wow. That’s some real smart stuff EO.
      So if you don’t have any cows to count,, what do you count?

      Clearly you are better than everyone here.

    23. OK, MM666, you seem to be a sorta Eternal Optimist, like me – only more on the beefy and leathery side. Tell you what, here’s a website run by a Captain Morgan – like the infamous pirate. This bloke is clued up and profiteering from it as well – as one would expect. Have a visit and keep your eyes and ears wide open. You may not like what you see and hear, but try to remember it, because he’s ‘right-on-the-money’.

      http://tinyurl.com/6g465v

    24. OD – try not to do that too often (OD). No, I’m not better than anyone here – just ‘better informed’! 😉 I count my blessings every day – and they are many, Thank God! 🙂 You might say they are ‘immaterial’. 😉

    25. Saying you are better informed makes you look like you think you are above everyone.

      You won’t be “informing” anyone on a forum revolving around mortgages.

      In fact, preaching never persuaded anyone of anything. you lead by example, not by your mouth.

    26. MM666:

      Isn’t Dubya a Methodist? I’m sure there is some (occult) method to his madness!

      Tell you what, click on my name and try to understand what you see there. If at first you don’t like what you see, keep going anyway. You have nothing to lose except a few cattle. Cattle don’t matter in the greater scheme of things. Trust me on that! When you’re (well) done, come back here and let’s see if there is more useful stuff under your hat.

    27. OD: Read what you just wrote and try to understand what you just wrote. Keep doing it until your face turns red and you have removed your foot from your mouth. Good Luck!

    28. Mortgageman,

      “23 Year” is dead-on target. How do I know this, because I’m an Appraiser of 16 years. You work out of Texas which has VASTLY different laws in place than 99.9% of every other state in the Union.

      Enter the rest of the nation. LTV’s are so out of whack right now because of severe depreciation that FHA is often the ONLY WAY to get financing. 8 out of 10 appraisals that I get are now FHA. This is pure fact. There’s no reason for “23 Year” or myself to BS you or anyone else on this. FHA is damn near the only way for anyone to get financing right now which means they are taking on HUGE risk and guess who is going to pay for that tab when it comes due? You and me.

    29. Oh, I’m sorry, I was wrong. You don’t “look like” or “sound like” a religious, righteous prick. You are one.

    30. JRB,

      Not True. There are people buying at the deflated prices in CA, NV, AZ et al… I am doing business there too. 99% of my business is purchase and they are all convention or Jumbo, no FHA’s.

      Down payments are required on most. These people would have been putting money down anyway and are not affected by the market conditions.

      Optimist,

      You are a walking oxymoron. Your words here do not match your site. I have not looked at the other site yet, just originated 2 more, IN CALIFORNIA!

    31. there far more foreclosures than sales, and that is a fact. I have a new post with breaking news coming in 15 mins.

    32. I almost forgot, EO, .. if you take your foot out of your mouth, then maybe others will follow.

    33. LOL!
      The only Zionist shill I notice on this forum is you!
      I think you secretly have a thing for Zionism.

    34. ..spank me EO!

    35. Hey, admin – we seem to have an out-of-control teenager (or younger) in our midst. I think you should check his ID.

    36. I’m only entertaining myself until MR. Mortgage puts up his next post about oh yeah,,…MORTGAGES!!

    37. Hey Admin – we seem to have a self-righteous senior citizen (or older) in our midst. I think you should check his cataracts & liver warts for signs of sanity.

    38. “Lunaling” LOL! That’s a new one! ; P

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