by Dan Krell © 2009
Last week, the National Association of Realtors (NAR) announced that pending home sales are up for the seventh straight month. The October 1st press release indicated that the number of signed contracts increased to the highest level since March of 2007; the August pending home sales index is up 6.4% from July and up 12.4% from August 2008 (Realtor.org).
Not to be confused with the existing home sale index, (which calculates the actual number of closed transactions as well as median home prices), the pending home sales index reports activity that is based on the number of signed contracts in any given month; the index is used to compare monthly home buyer activity.
Alone, the pending home sales index doesn’t say much other than that home buyers are interested in getting into the market. However, when combined with the recent existing home sales index, which recently reported that August home sales slightly decreased compared to July of this year (but still remained above the August 2008 sales figures); the story that emerges is one we are not used to hearing.
Although it may be true that some home buyers are being turned down for loans due to a rapidly changing mortgage industry, however, the disparity between the indices may also indicate that the state of the present market is based on delayed home sales. Until about a year ago, it was unusual for anyone to write an offer that had a closing date of forty five days or more. During the real estate boom earlier this decade, a home seller would almost certainly pass over your offer if you could not settle in thirty days or less. However, since a large number of distressed properties have penetrated the market, multi month closing delays and even unsuccessful closings (sometimes banks foreclose before a successful close of a short sale) have become common and sometimes expected. Lawrence Yun, NAR Chief Economist, stated in the October 1st press release that, “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales…”
Pending sales are also outpacing home sales here in Montgomery County (as reported by the Greater Capitol Association of Realtors, Homes Sales Statistics for Single Family Homes; August 2009); however sales indicators show an overall increase from 2008. Home sales increased 24.8% in August 2009 as compared to August of 2008, however decreased approximately 16% from July 2009.
The missed story, however, may actually be the shrinking local home sale inventory. Although, national home inventory is slowly decreasing, local inventory of homes for sale has decreased significantly from last year (as reported by the Greater Capitol Association of Realtors, Homes Sales Statistics for Single Family Homes; August 2009). Single family homes available for sale in Montgomery County decreased about 47% comparing the inventories of August 2009 to August 2008!
Although a shrinking inventory often means increased home buyer competition, don’t expect another historic seller’s market anytime soon. An expiring home buyer tax credit combined with an expected new wave of foreclosures and a changing mortgage industry may have a significant effect on the market. But for now, pending optimism remains for a stable real estate market.
This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 5, 2009. Copyright © 2009 Dan Krell