Pending Home Sales Slump 31 Percent From Year Ago, 10.2 Percent in September

October 29, 2022

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2:00 pm

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31 comments

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Economics

Understanding Pending Sales

New homes are reported at contract closing. Existing home sales are reported at closing.
Pending sales represent contracts signed but not closed.
The September pending home sales report is an advance indicator of existing home sales for October and and partially November.

Pending Home Sales Dive 10.2% in September

The National Association of Realtors reports Pending Home Sales Waned 10.2% in September (Plunge or Dive is a better word than wane).

The Pending Home Sales Index (PHSI), slumped 10.2% to 79.5 in September.
Year-over-year, pending transactions slid by 31.0%.
An index of 100 is equal to the level of contract activity in 2001.

Pending Home Sales Regional Breakdown

The Northeast PHSI descended 16.2% from last month to 64.2, a decline of 30.1% from September 2021.
The Midwest index retracted 8.8% to 80.7 in September, down 26.7% from one year ago.
The South PHSI faded 8.1% to 97.0 in September, a drop of 30.0% from the prior year.
The West index slipped by 11.7% in September to 62.7, down 38.7% from September 2021.

Mortgage Rates

Mortgage rates have more than doubled in little over a year.

No Surprise

Given the national average mortgage rate is over 7 percent and the global economy is sinking fast, the collapse in existing home sales is no surprise.

Existing Home Sales Decline 8th Consecutive Month, Down 1.5% Says NAR

On October 20, I noted Existing Home Sales Decline 8th Consecutive Month, Down 1.5% Says NAR

In a report that will shock no one, existing home sales declined for the eighth month in September, down 1.5 percent, according to the National Association of Realtors.

The above report was about September sales.

The September pending home sales report reflects on October closings. Expect a massive plunge in existing home sales in October.

This post originated at MishTalk.Com.

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31 Comments

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vanderlyn

1 year ago

i’ve used TOL stock as a leading indicator for residential prices by about a year or so. it’s down about 40% from peaking year ago.

MarkraD

1 year ago

I’m watching weekly initial claims, JOLTS and real wages, no sign of receding as yet, excepting the effects of inflation on wages (real). I assume we’re going to see steep declines in the R/E & construction sectors soon, which account for maybe 15% of all employment.

Meanwhile, Russia just killed the UN grains deal – claiming Britain attacked Crimea, restricted supply of grains atop restricted energy is a problem when the Fed’s restricting demand to fight wage inflation.

Not just here and now, but that an adversarial dictator acting in his personal interest has the ability to manipulate inflation in tandem with or against Fed policy or economic conditions, equates to more of this problem down the road, which is a concern with Putin taking resource rich territories.

In the 2020 COVID crash, Putin flooded the market with oil atop the Covid decline in price, stating he wanted to bankrupt U.S. oil co’s – now, it seems like he’s attempting to spurn the Fed and cause maximum damage to the U.S. economy via inflation, constricting supply at a time the Fed (and most CB’s) are restricting demand.

I mention this for the fact that it relates to Fed policy and home sales, I just don’t think supply problems causing inflation can be resolved with Fed policy, but at the same time we do have a labor shortage…seems the solution should be to focus on getting more labor vs restricting demand.

Meanwhile we’ve had 2.4 million migrant arrests this year at the southern border.

Why not just give them temporary jobs while they’re here? More labor at time labor shortages are causing inflation and the Fed’s hiking while we have food/energy supply problems.

Keep your nose, your face needs it.

MPO45

1 year ago

Reply to MarkraD

As I wrote in another comment, I visit news.google.com weekly to look at the labor shortage issue and every week the problem seems to get worse.

link to npr.org

there was a narrative not too long ago that “free government money” was causing the labor shortage then it was the rent moratoriums or other nonsense. Well here we are now months and years from both and the labor shortage still persists. Why? Its the boomers retiring in large numbers, low immigration and people moving up the food chain as boomers retire. There is literally no one left to do the crap jobs that no one wants to do. It is having a real impact across the country and politicians are playing games sending refugees from Texas to New York or Chicago while nursing homes are shutting down and businesses lose billions because of inadequate labor.

MPO45

1 year ago

Reply to MarkraD

Greg Abbott in Texas should just be shipping immigrants to Maine, they actually want the people there and I’m sure if someone created a national database, other areas would take them.

link to mainepublic.org

MarkraD

1 year ago

Reply to MPO45

Reminds of of the Pellagra incident ~100 years ago, a NYC doctor discovered that mills were bleaching B3 out of flour, causing sickness and death – Southern politicians and mill owners rejected the “New York Liberal Jew” and thousands died for months while they refused to act.

MarkraD

1 year ago

Reply to MarkraD

To MPO45 –

Reminds me of the Pellagra incident 100 years ago, thousands died despite a NYC Jewish doctor telling southern states mills bleaching B3 from flour was the cause. They refused to listen to his “politically biased” determination that would cost mills money to fix and hurt the economy.

xbizo

1 year ago

Mortgages are maybe 1.5% overpriced. Not sure why. Is it just volatility? Is it because a price decline is happening?

Affordability should improve. FWIW, I expect 5.5% mortgages at lower house prices in six months.

MPO45

1 year ago

Wage inflation still hot and likely stay that way given labor shortages, boomer retirements and low immigration.

link to bls.gov

Got housing PUTS?

StukiMoi

1 year ago

Reply to MPO45

Wait for next years bonus season……

dtj

1 year ago

Reply to MPO45

4-5 million immigrants since Biden took office (over 2 mil legal and over 2 mil illegal). That’s low?

MPO45

1 year ago

Reply to dtj

What is your source for this data? I suggest you head over to news.google.com and type ‘labor shortage’ and read every f*cking article that comes up. There are labor shortages everywhere in the US, Canada, Germany, UK and more.

Every business is pleading for immigration reform and more labor. The hysterics from Tucker and Fox News idiots isn’t reflecting reality. Keep in mind that we’re not even in the real labor issue right now. Over the next 8 years 40 to 60 million boomers will retire. The labor shortages right now are a joke compared to what is coming.

Don’t take my word for it, just watch it get worse EVERY.SINGLE.YEAR. Even a recession won’t fix this mess which is why inflation isn’t going to come down anytime soon and the Fed will keep hiking.

Esclaro

1 year ago

Reply to MPO45

Traitor Carlson does the Kremlin’s work and everything he says is to further Russian interests. He should have been tried and executed for treason already!

TexasTim65

1 year ago

Reply to MPO45

The problem isn’t raw manpower but rather a shortage of skilled manpower. Illegal immigrants have very few skills. Most can’t speak English and I suspect quite a lot can’t even write Spanish and have less than a grade 8 education. They won’t be able to do much more than manual labor like roofing or lawn care.

We need skilled immigrants. The US should be looking to raid other countries best and bring them here on visas (ie lots more H1B type visas).

MPO45

1 year ago

Reply to TexasTim65

The US should be looking to raid other countries best and bring them here on visas (ie lots more H1B type visas).

You are right about the lack of skills from people crossing the border but “poaching” other countries for skilled labor is exactly what every other industrialized nation is trying to do. Canada wants to attract Americans, America wants Canadians, how is this supposed to work when both are short of skilled labor? The same is true for most of Europe. What will happen in the short term is US states will start poaching each other before they are able to poach other countries.

The obvious solution is to take unskilled immigrant labor and educate to the level needed. This will take time, money and effort which no one wants to do so we’ll end up with endless attrition. And the band plays on.

TexasTim65

1 year ago

Reply to MPO45

I came from Canada to the US in the mid 90s as ‘skilled labor’ in the tech field. I came because the US paid a LOT more than Canada did and there were WAY more opportunities here as well. It’s easy for the US to poach Canadian talent. It’s even referred to as the ‘brain drain’ in Canada.

Zardoz

1 year ago

Reply to MPO45

His source is Tucker Carlson, the go to informant for the chubby manbaby demographic.

Lisa_Hooker

1 year ago

Reply to MPO45

Hopefully for the last time:

These labor shortages are at the offered wages.

As I have mentioned before, I find there is a shortage of BMW dealers willing to sell me a new 740i for $20k.

So far no takers so there must be a shortage.

db_

1 year ago

I think the hypothesis of a recession with very little loss of employment needs to be revisited, mainly because I suspect the employment datasets may not be robust enough to actually capture what’s happening in the employment marketplace. I also suspect the data analysis will be too slow to recognize the speed at which change will occur.

As an example, we may have a fairly robust understanding of trade with respect to energy and food, by volumes and dollars over time. I don’t think there is any analytical framework that captures the impact on consumer behaviour and the inter-locking and cascading effects on aggregate economic demand and how retail investors (a.k.a. the kissing cousins Robinhood/Crypto ‘investors’) may respond.

Suppose we take demographic ‘slugs’ (groupings with similar enough traits to aggregate for modelling purposes) of the population and run them through a behavioural simulator model. What happens in aggregate to a given demographic slug when their crypto and equity wealth drop precipitously, their cost of living skyrockets, their wages stagnate, the cost of their leverage/borrowing is exploding etc.?

I think labour participation rates of boomers could skyrocket via contract remote work as the semi-retired feel the full impact of the contraction of the wealth effect. They would be replacing younger employees at the entry to middle level of white collar professionals who can work remotely. The aggregate employment stats may suggest no drop in employment but this kind of work swap would have profound long-term effects on employment, spending, household formation etc. Would any stat or analytical framework be able to capture this kind of phenomenon?

I would be hard-pressed to believe employment in FIRE (finance, insurance real-estate) and residential construction will hold up. Though IT employment may hold up, I’m not sure wages will, especially if the biggest employers start culling and the zombie players start collapsing in droves as private equity vultures start picking off the weak and bleeding every drop of IP before shuttering. Will tax revenues hold up sufficiently to cover rising debt servicing costs? It will be difficult to sustain increasing government employment and growing entitlements.

I follow Danielle DiMartino-Booth of late; I appreciate her candour, analysis and attention to detail, but most especially how honest she is about what she doesn’t really know. Of late, the relationship between QT, the Fed’s analytical framework and interest rate policy makes for captivating listening; she’s very balanced in that though she is very aware of the dangers over overshoot she is equally aware how dangerous the notion of the ‘Fed Put’ is and how pervasively the market believes in it.

worleyeoe

1 year ago

Reply to db_

The biggest variables in how things turn out are governmental intrusion into markets such as renewed rent & mortgage relief and when the Fed eventually pivots into QE. How far is the Fed willing to wreck housing & employment and WILL Congress let them get away with it.

My only prediction for the next 12 months is that PCE inflation falling back to 3% only happens if there’s at least a 20% downturn in home prices, unemployment rises to at least 4.5% for 6-9 months and 30YFRM doesn’t push below 5%. If the downturn turns out to be shallow, a less than 5% 30YFRM will stabilize residential housing. We all know that it needs to stay at about 6% on the backend of a 20% decline in housing.

MarkraD

1 year ago

Reply to worleyeoe

The root problem is wage inflation as a result of labor shortages, the Fed’s now actively suppressing the economy to restrict labor demand and reduce home prices – there are babies in that bath water, too bad we can’t find a source of labor to increase supply to stem inflation.

worleyeoe

1 year ago

Reply to MarkraD

The root problem was $5T in QE, $6T in Congressional COVID stimulus spending, almost $2T is spending by Biden since cheating his way into office, bloated local government spending from huge property tax increases, rent & mortgage relief.

There’s too much demand chasing too few goods creating a labor imbalance, so I don’t disagree with your point, just trying to refine it into being more granular.

HippyDippy

1 year ago

Reply to MarkraD

The root problem is government. Government can end the FED. In fact, the Treasury Department has an office to set guidelines for the FED. I’m not sure how they’re used, but the FED does have a measure of oversight. So I hold government responsible for the FED actions. And I hold the people responsible for tolerating this abomination of a government. It lost sight of its stated purpose before the ink dried on that constitution anyway.

MarkraD

1 year ago

Reply to HippyDippy

Right, we can all live in caves eating nuts n’ berries, problem solved!

hhabana

1 year ago

Here in the Sacramento region, I see some price drops especially in the older neighborhoods where I have rentals, but nothing too drastic. There is one beater home that was dropped like 15% or so over the last 3-4 months that I see daily on Realtor.com. Still, homes are selling. Not sure if there is a lag affect with the stuff pending and that was lower interest rates.

I still think investors are buying. I’m looking daily myself now for something less expensive to fix and rent, but the asking is still too much for the condition of the property. As long as I see “help wanted” signs then I believe that real estate is the best investment. There are a lot of people looking for rentals. I think this inflation is being accepted by many people. The government is going to have to raise rates to 15-20% to have an effect. Congress with their indiscriminate spending and Fed being the credit card for this spending have destroyed price discovery and the country.

Maximus_Minimus

1 year ago

The open question is, what was the interest rate when the closed contracts were signed? What is the averige length of the contract from signing to closing?

hhabana

1 year ago

Reply to Maximus_Minimus

If you have a couple making 100 grand each then you can afford this interest rate if you have a brain. Just do a 15 year and try to put more money into the principle of the mortgage and pay off quicker. Learn to make your coffee and cook at home.

Zardoz

1 year ago

Reply to hhabana

…or wait while you see proce drops, and get the same house in a year when you don’t have to be a slave to it.

StukiMoi

1 year ago

Reply to Zardoz

Or, even better, try growing a brain and kick the monkeys bent of banning more competent people from offering you way better housing for way cheaper out of office.

But if growing a brain is off the table then, yes: Waiting a year or two is certainly better than being raped even harder than you otherwise would need to. Besides: Who knows, someone else may grow a brain in the interim, such that your savings become genuinely meaningful…..

Six000mileyear

1 year ago

If only I could short sell residential housing. Presently it is overvalued by more than 30% based on interest rates alone. Once prices fall, mortgage holders will be undercapitalized.

MPO45

1 year ago

Reply to Six000mileyear

You can short REITs, Home Builders, and other real estate very easily in numerous ways. Like I said before, EVERYONE knows housing is going to crash but few seem to be prepared to profit from it. Sad.

Call your broker, tell them you want to “Buy to OPEN” PUT on (insert equity/REIT/instrument). They will ask you for a strike price so you need to tell them how much you think it will drop and ensure the strike and premium are in profitable territory.

worleyeoe

1 year ago

Reply to Six000mileyear

You can short the major home builders.

Pending Home Sales Slump 31 Percent From Year Ago, 10.2 Percent in September

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