Pending U.S. home sales fell more than expected in July as the housing market's struggles continued, an industry group said Tuesday.
The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2 percent to a reading of 86.5 from an upwardly revised June reading of 89.4. The index was 6.8 percent below year-ago levels.
Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.
Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 88.6. The index, which sunk to a record low of 83 in March, stood at 92.2 in July 2007.
Lawrence Yun, the trade group's chief economist, forecasts U.S. home sales are on a pace to fall 11 percent from last year to just over 5 million in 2008.
Tuesday, September 09, 2008
July Pending Home Sales Fell More than Expected
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Yes, but hasn't the playing field just changed? Mortgage rates dropped 30bps in one day based on the U.S. government's takeover of Fannie Mae and Freddie Mac. Sure, there is still a lot of uncertainty over how long and if mortgage rates will stay low. But I can't believe that the markets freaked out over the pending home sales number. Of course they would be low; mortgage applications fell and rates were high. Duh.
ReplyDeleteThe revitalized secondary mortgage market does much more by way of predicting the stabilization of the U.S. housing market (starting with sales) than does some silly pending home sales index (which already did not predict well existing home sales in this credit crisis anyway). Don't you think?
Thanks, like your blog! Rebecca
Rebecca Wilder said...
ReplyDeleteYes, but hasn't the playing field just changed? Mortgage rates dropped 30bps in one day based on the U.S. government's takeover of Fannie Mae and Freddie Mac.
If all it took to change the playing field was a 30bps drop, there would be no need for a takeover. Freddie/Fannie could have done that long ago.
Hi Robert,
ReplyDelete"Freddie/Fannie could have done that long ago."
Freddie and Fannie do not set mortgage rates, the private banks making the loans do. All Fannie and Freddie do (which is a lot) is buy the mortgages off the private banks, bundle them up into MBSs, and sell them on the open market. When Fannie and Freddie are under fire, banks get nervous and raise rates. Certainly, the playing field has changed - not because mortgage rates fell 30bps, but because Fannie and Freddie are now run by the U.S. Treasury, where last time I checked, was not likely to default.
Thanks, Rebecca
"...but because Fannie and Freddie are now run by the U.S. Treasury, where last time I checked, was not likely to default."
ReplyDeleteso is the Treasury (China et al) the lender of last resort? all the other lenders have failed, i don't see a reason why one more can't.
The fundamental to housing returning to normal is that housing PRICES return to normal. Since prices have outstripped inflation, and the ratio of income to housing prices as a measure of affordability is way out of whack still, I doubt there will be a big revival.
ReplyDeleteBTW, most on this blog believe that housing prices move up fast, but not so down. Often the prices -- and the market as a result -- stagnate for a long period of time while incomes catch up. That's what I expect in many areas, including Washington.
Rebecca Wilder said...
ReplyDeleteFreddie and Fannie do not set mortgage rates, the private banks making the loans do.
What factors do private banks take into account when setting rates?
I concur, F/F do not set rates (directly) but as you pointed out:
Mortgage rates dropped 30bps in one day based on the U.S. government's takeover of Fannie Mae and Freddie Mac. Sure, there is still a lot of uncertainty over how long and if mortgage rates will stay low
But then:
Certainly, the playing field has changed - not because mortgage rates fell 30bps,but because Fannie and Freddie are now run by the U.S. Treasury, where last time I checked, was not likely to default.
What’s your point here? That the 30bps drop is a factor; the 30bps drop is not a factor; the likelihood of F/F defaulting, or all of the above?
All of the above, but underscored by the takeover of F/F. The severely reduced likelihood that F/F default will result (in theory, of course) in sustained lower mortgage rates, at least in the near term until the Fed targets higher rates. Thus, pending home sales, which were based on previous mortgage conditions (pre F/F takeover), no longer predict housing conditions going forward (if, as I said before, they ever in fact did a proper job of predicting market conditions going forward).
ReplyDeleteRebecca
Based on my conversation with you on this blog, I have written a more in-depth discussion here: http://www.newsneconomics.com/2008/09/what-does-pending-home-sales-report.html
Thus, pending home sales, which were based on previous mortgage conditions (pre F/F takeover), no longer predict housing conditions going forward (if, as I said before, they ever in fact did a proper job of predicting market conditions going forward).
ReplyDeleteThe housing downturn was accurately predicted without the knowledge of future mortgage conditions and while rates we’re at their best.
A better prediction of conditions going forward is to look at historic fundamentals, much the same way as the bubble/downturn was predicted.
One such fundamental is income. Few economists will publicly discuss this. I believe the reason that they do not, is that the numbers would be too ghastly.