December 2018 Pending Home Sales Seasonally Adjusted Index Remains In Contraction Year-Over-Year

The National Association of Realtors (NAR) seasonally adjusted pending home sales index remains in contraction and worsened year-over-year. Our analysis shows continued worsening of growth. The quote of the day from this NAR release:

... So far, the partial government shutdown has not caused any obvious damage to home sales. Seventy-five percent of Realtors reported that they haven't yet felt the impact of the government closure ...

Analyst Opinion of Pending Home Sales

The rolling averages remain in negative territory. The data is very noisy and must be averaged to make sense of the situation. The long term trends continue to be downward. Note that the downward trend of home sales began in mid-2015 - and unlike the NAR's optimism, we see no upturn for home sales in 2019.

Pending home sales are based on contract signings, and existing home sales are based on the execution of the contract (contract closing).

The NAR reported:

  • Pending home sales index decreased 2.2 % month-over-month and down 9.8 % year-over-year (originally reported down 7.7 % last month).
  • The market [from Econoday} was expecting month-over-month growth of -0.4 % to 0.4 % (consensus 0.1 %).

Econintersect's evaluation using unadjusted data:

  • the index growth rate decelerated 1.7 % month-over-month and down 9.5 % year-over-year.
  • The current trend (using 3-month rolling averages) is decelerating and in contraction.
  • Extrapolating the pending home sales unadjusted data to project January 2019 existing home sales would be down 9.8 % year-over-year for existing home sales.

(Click on image to enlarge)

From Lawrence Yun, the NAR chief economist:

.... cited several reasons for the decline in pending sales. The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December.

So far, the partial government shutdown has not caused any obvious damage to home sales. Seventy-five percent of Realtors reported that they haven't yet felt the impact of the government closure. However, if another government shutdown takes place, it will lead to fewer homes sold.

As the government reopens, more mortgage options will come available for consumers. "Some home transactions were delayed, but we now expect those sales to go forward.

Despite the low home sales in December, the housing market will see improvement in 2019. The longer-term growth potential is high. The Federal Reserve announced a change in its stance on monetary policy. Rather than four rate hikes, there will likely be only one increase or even no increase at all. This has already spurred a noticeable fall in the 30-year, fixed-rate for mortgages. As a result, the forecast for home transactions has greatly improved.

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