Monday, April 03, 2006

NAR: Pending Home Sales Drop

From the National Association of Realtors:

Pending Home Sales Leveling Out, Market Balancing

The Pending Home Sales Index,* based on contracts signed in February, slipped 0.8 percent to a level of 117.7 from an upwardly revised index of 118.6 in January, and is 5.2 percent below February 2005. January experienced a strong upward revision from a preliminarily reported index of 116.3 and was higher than the December reading of 117.6; additional data from the Northeast showed that region to be stronger than earlier believed.

The index is based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.
...
Regionally, the PHSI in the Northeast jumped 6.8 percent in February to 107.9 but was 1.2 percent below February 2005. In the Midwest, the index held even at 114.3 and was 6.0 percent below a year ago. The index in the South slipped 0.1 percent to 129.3 in February and was also 0.1 percent lower than February 2005. The index in the West fell 7.6 percent to a level of 110.9 in February and was 14.8 percent below a year ago.

Pending Home Sales Index (PHSI)(PDF)

Caveat Emptor!
Grim

32 Comments:

Anonymous Anonymous said...

It's actually a comfort that we've accepted we'll buy in 12-18 months (and not before).

Should have another $75K in the bank by then, gathering interest (which offsets rent).

We will buy when prices return to normal proportions above incomes, and not before.

It was difficult to come to this point, but now that we're there, it's actually a relief. We've taken ourselves out of the market.

4/03/2006 10:32:00 AM  
Blogger chicagofinance said...

you couple the NAR report with this story - very bad

http://biz.yahoo.com/ap/060403/economy.html?.v=6

4/03/2006 10:52:00 AM  
Blogger skep-tic said...

interesting take on the current state of housing market:

http://www.itulip.com/housingpriceregionscascade.htm

"Certainty about price gains is replaced by uncertainty. This motivates further delays in buying decisions. Market psychology shifts to the classic deflationary “I’ll wait to buy because the price is likely to fall” decision process, the reverse of the inflation cycle psychology of “I’d better buy it now before the price gets further out of reach.” Deflationary psychology is especially self-reinforcing in declining property markets because a home usually represents the largest purchase a household will make and involves the greatest leverage as well.

The housing bubble, as with all bubbles in their later stages, are driven by the same psychological factors that drive all late stage asset bubbles, the popular assumption that prices only rise. A steady drumbeat of negative press today, as evidence mounts that the boom is over, reinforces the negative price expectations, but nothing gets the fear juices flowing like watching home prices collapse in neighboring towns, or watching one’s neighbor lose his or her home."

4/03/2006 11:00:00 AM  
Anonymous m reynolds said...

Anonymous said...
It's actually a comfort that we've accepted we'll buy in 12-18 months

It is a hard thing to do. But it is completely rational. Buyers for the last 5 years were part of a mania.

I have read a few articles in the past week dicussing resets and their effect on the borrower. In many cases people are defaulting. This will add to the downhill momentum as well.

m reynolds

4/03/2006 11:18:00 AM  
Anonymous Anonymous said...

We're in no rush. Sold in Jan 2005 and will not purchase for at least 18-24 mos. Statistical analysis of the housing cycle tells us that the bottom of this cycle should occur around 2008. Since we plan on staying in our next home for approx 20-30 yrs, an additional 1 1/2 - 2 yr wait will only add cash to our bank account!

4/03/2006 11:24:00 AM  
Blogger skep-tic said...

I wouldn't be surprised if a sizable portion of these pending homes sales fall through due to financing problems

4/03/2006 11:36:00 AM  
Anonymous Anonymous said...

can anybody provide some factual backing to what i've been hearing? I've heard on a few occasions in the last couple of months that 1 out of every 8 homes in NJ is being forclosed... it sounds very high to me but I keep on hearing it... any comments????
thanks
bobby

4/03/2006 12:10:00 PM  
Blogger grim said...

Bobby,

No, those numbers are not correct, it's more on the order of 1 out of every 100. That isn't to say the trend hasn't been increasing. I'll see if I can find the hard numbers for you.

That number, however, sounds like it may have been taken out of context and distored.

grim

4/03/2006 12:18:00 PM  
Blogger grim said...

I wonder how many folks are in this situation:

http://www.signonsandiego.com/uniontrib/20060402/news_1h02mailbag.html

QUESTION: About a year ago, we bought our home with the help of an adjustable rate mortgage (ARM) at 1.95 percent interest. We knew it would adjust after six months to 4.95 percent interest. That was quite a jump in our monthly payment, but we handled it.

However, when we received the lender's Internal Revenue Service 1098 year-end report, we learned our mortgage balance has grown by about $7,800. When I called the lender, I was told the increase was “unpaid interest.” What's that?


ANSWER: The lender should have explained the 1.95 percent “teaser” interest rate and your current 4.95 percent interest rate don't fully pay the ARM interest rate, which probably adjusts monthly, earned by the lender. The unpaid interest you didn't have to pay was added to your mortgage's principal balance each month.

This is called negative amortization because you aren't paying the full amount of interest earned by the lender. The result is you are not building any equity by reducing the mortgage balance, which is growing each month instead of slowly declining as with an amortized mortgage.

Negative amortization ARMs keep your monthly payments low. Hopefully, your home's market value appreciates faster than your mortgage balance increases. Now you know why I never recommend negative amortization ARMs.


Frankly, I'm a bit scared that someone even needed to ask this question. The fact that this appeared in print means there are many more "homedebtors" in the same boat...

grim

4/03/2006 12:35:00 PM  
Blogger skep-tic said...

The Federal Reserve Board's "Do Homeowners Know Their House Values And Mortgage Terms?" recently revealed:


Twenty-eight percent of home owners with ARMs can't identify the interest rate index to which rate adjustments are tagged.

Thirty-five percent of them don't know how much the rate could increase at one time.

Forty-one percent don't know their mortgage interest rate's potential maximum.

Twenty percent don't even know what their starting interest rate was when the loan originated.

4/03/2006 12:45:00 PM  
Blogger skep-tic said...

btw, 1/3 of all homes purchased in 2004-05 were financed with ARMs.

looks like some homeowners are in for a world of hurt

4/03/2006 12:54:00 PM  
Blogger Richard said...

ARM'S aren't such a bad thing if you're using them for the right reasons and you have $ cushion in case plans in the future change. unfortunately it's been shown time and again americans only think of one future outcome and plan only for that. this is why many get caught by things 'out of the ordinary' like a medical condition or some other life changing event.

4/03/2006 01:04:00 PM  
Blogger Richard said...

IMO it's going to take 8% interest rates to get this bubble to completely stop deflating. while the 1 year ARM is up 91bps from last year that isn't enough to curtail demand.

4/03/2006 01:05:00 PM  
Blogger grim said...

It's all about the lowest payment right now. It's all the average American thinks about. When was the last time you saw the price of a car in a newspaper ad? It's all about the monthly payment..

If the average person had any kind of fiscal intelligence, there wouldn't be a market for a teaser rate loan.

grim

4/03/2006 01:19:00 PM  
Anonymous UnRealtor said...

CBS News:

Protect Yourself If The Bubble Bursts
http://www.cbsnews.com/stories/2006/03/30/earlyshow/living/money/main1455162.shtml

4/03/2006 02:16:00 PM  
Blogger skep-tic said...

ARMs might work well in certain circumstances, but it's hard to think of a worse occassion for them than during the past few years, given the availability of extremely low fixed rate mortgages

of course, even during this period ARMs may have been ok for flippers, but for your average person who just wants to live in his house (and who makes up the majority of mortgagees), it's poor choice

4/03/2006 06:00:00 PM  
Anonymous trroll said...

skep-tic,

For many it was the only way to get into the house they wanted. The house prices outpaced the wages so far that, IMHO, at least 60% of all the buyers could not/should not afforded them. But using those gimmicky mortgages they were able to fool themselves into believe that they can and should. And being honest - I don't know how to feel about those people - some times I feel the compassion for them but other times I think that they deserved what's coming for not being smart and patient enough.

I do not know, the jury is still out on that one.

4/03/2006 06:56:00 PM  
Blogger Richie said...

If you couldn't afford the fixed-rate mortgage when you got the adjustable, chances are you can't afford the fixed rate now.

There should be stipulations on who could apply for ARM's, unfortunately horrible lending practices will be to blame for the fallout that will happen in the future. People were expecting to 'cash out' of their houses with appreciation by paying only interest on their loan. They'll be in a bit more sticker shock as appreciation goes to nil and they have 0 equity in their home.

The bankruptcy laws will only make it worse for those people. How perfect the timing was to change the bankruptcy laws as the bubble was just coming down from it's peak.

4/03/2006 07:50:00 PM  
Anonymous Anonymous said...

richie great point on the recent new rules that went into affect with bankruptcies... Does anyone have a statistical breakdown of ARMs. Basically percentage breakdown on 1,3,5,7yr. If its weighted primarily towards 1 and 3yr arms we should start seeing the affects of those readjustments this summer into the new year. Also pardon my ignorance but with an interest only loan when does a fixed rate kick in??
bobby

4/03/2006 09:41:00 PM  
Blogger chicagofinance said...

This comment has been removed by a blog administrator.

4/03/2006 09:45:00 PM  
Blogger chicagofinance said...

just parrotting others -

Principle amount of ARMs resetting

2005: $350B
2006: $650B
2007: $1,300B

don't worry about the breakdown

FYI - I have no clue about standard terms of I/O's, I've never had reason to recommend one.

4/03/2006 09:46:00 PM  
Anonymous Anonymous said...

thanks for the quick response chicagofinance!

found some additional gloom from an article that featured
Doug Duncan, chief economist for the Mortgage Bankers Association (MBA) from last week on CNN

"Although borrowers are often told that the first year is the hardest, delinquencies have historically reached their highest points during the third and fourth years of mortgages, according to Doug Duncan"

"A recent report from the National Association of Realtors found that the median new home buyer put down just 2 percent in 2005. Forty-three percent put down no money at all. And according to SMR Research, some 25 percent of loans were interest-only, do nothing to reduce the debt on the house."

this info might of been posted previously but article is a few days old ... i guess its just a reiteration.....

bobby

4/03/2006 10:05:00 PM  
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