The National Association Of Realtors Is Cheering For The Losing Team

The start of 2011 appears poised for dismal home sales, based on pending home sales data from the NAR (National Association of Realtors). 

The NAR, continuing to use innovative techniques, has implied the opposite.

The recent report on December pending home sales started with the following statements:

Pending home sales improved further in December, marking the fifth gain in the past six months, according to the National Association of Realtors®

The Pending Home Sales Index,* a forward-looking indicator, increased 2.0 per cent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November. The index is 4.2 per cent below the 97.8 mark in December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, credits good affordability conditions and economic improvement. “Modest gains in the labour market and the improving economy are creating a more favourable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions. Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favourable environment for buyers with good credit,” he said.

“In the past two years, home buyers have been very successful, with super-low loan default rates, partly because of stable home prices during that time. That trend is likely to continue in 2011 as long as there is sufficient demand to absorb inventory,” Yun said. “The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales. However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”

The NAR conveniently overlooks that home sales are at historic lows and the “recovery” from those lows in recent months has been anemic, at best, and year over year comparisons have been terrible. 

Econintersect uses unadjusted data in most of its analysis – and that is the case for NAR produced data here.  The graph below uses a one month offset on the pending home sales data, and graphs it against the unadjusted NAR home sales data.


The above graph shows the YoY trend lines between January 2009, January 2010, and Econintersect’s projected 260,000 existing home sales for January 2011.  The unadjusted actual home sales volumes in January 2009 was 257,000,  and in January 2010 – it was 275,000.

Last month, the forecast of 326,000 was significantly missed – and came in at 404,000.  In December 2009, existing home sales were 413,000 – and so December 2010 still saw a YoY decline.  This lack of correlation to the pending sales index was likely due to year end crunch for tax reasons.  However, January has had recently a good correlation between pending and existing home sales.

The December positive divergence for home sales (diverging from November pending home sales) is not the first to occur during the collapse of the housing bubble.  The previous such divergences were resolved with subsequent decline in home sales following pending home sales lower.  If this does not happen this time, perhaps it could be a sign that the bubble collapse is nearly over, if not already completed.

While it is true that existing home sales are not in a free fall, there are no upward trend lines at this time.  At this point, any improvements seen by the NAR is only wishful thinking.

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