The pending home sales report issued yesterday by the NAR (National Association of Realtors) is encouraging, but don't pop the cork just yet. The findings on Monday are based on their Pending Home Sale Index which counts the number of signed purchase agreements. In this case, a 3.7 percent increase in October contracts reflects the intentions of buyers and sellers to go to settlement in the future. Furthermore, when the numbers are considered on a year-to-year basis, they indicate a 31.8 percent increase over the same period in 2008. Despite the positive numbers, don't put the Dom Pérignon on ice before drinking a stiff cup of coffee.
There are least two sobering factors that must be considered before we can take solace in a near-term turnaround. First, the operant word in the index is pending. Even in a healthy real estate market, contracts often fail to ever make it to the settlement table. There are many things that can scuttle a contract. The most common reason is the inability of the purchaser to obtain financing. Considering on December 12 Fannie Mae will mandate more protectionist qualifications for borrowers (minimum credit scores will increase from 580 to 620, and the maximum debt ratio will be reduced from 50 percent to 45 percent of gross monthly income), it is likely the increase in October will be wiped out by the tougher underwriting standards to come less than a fortnight before Christmas.
To fully digest Monday's report one must compare it to what the market was doing in 2006. That is the second factor. Annual home sales then were about 6 million units. Even with the incentive of the $8,000 tax rebate, which spurred activity, home sales are still expected to be less than 5 million units for the year. Gimmicks will never supplant a healthy market. You do not have to be a Realtor or an economist to understand whenever there is an oversupply of anything--the price usually goes down. In the case of the current market, oversupply is an understatement. At the current pace, it will take at least another two years to have a balance of buyers and sellers inking contracts. The question is can America afford to wait for the market to recover from the crash. Most think not. The others drank the champagne before it was properly chilled.
The personal wealth of most Americans is in the equity of their homes. Whenever the value of that asset decreases--so does their personal wealth. For those with good jobs, good health and no children needing money for college--life goes on. But for those who plan to tap their equity to improve their standard of living, have an operation not covered by their insurance plan, or provide a good post-secondary education for their children, the outlook is overcast by the shadows made by the For Sale signs in their neighborhood that can be seen even in the twilight.
As our President implements the war plan he detailed last night, let's hope he will also wage a war against poverty on American soil. There is something beguiling about his plan to pay Afghan policemen $1,200 a month when unemployment benefits for some are little more than that and about to run out. With the Christmas shopping season about to go into high gear, perhaps it is time to send a letter to our Santa in the White House to put us at the top of his list. We already have enough ashes and switches from vacant properties.
"Not a creature was stirring ..." because no one lives in the house next door anymore. Ho, Ho or Bah Humbug!. Take your pick. Pass the eggnog, please!
York Van Nixon III
Licensed Real Estate Broker, Appraiser and Mortgage Broker
Nex Millennium Realty and Financial Service
YorkVanNixonIII.Com
Comments
Thank you very much for the facts. I feel so much smarter about the housing market. It is so hard to get real information form the media these days. Appreciate it!
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