Economists' Commentary: Pending Home Sales in November

January 6, 2009

By Lawrence Yun, Chief Economist

Pending home sales fell to the lowest point since the creation of the series in 2001. The index of 82.3 in November is a decline of 4.0 percent from October and a decline of 5.3 percent from one year ago. The sudden sharp collapse in the stock market in October and a further fall in November no doubt shocked consumers to hold back. The rapidly rising job losses and the weakest consumer confidence in over 30 years did not help.

The pending home sales index series, which measures contract signings and not closings, started in 2001 with a value of 100. The index reached 124 at the height of the boom in 2005. Now it is off by nearly 35% from the peak year, and based on extrapolation with closed sales data, it would match the sales conditions of 1997 or 12 years ago. Only the West region showed a rising sales from one year ago (by 19.3 percent) as bargain hunters are picking up distressed properties at rock bottom prices in California, Arizona, and Nevada. The detailed regional sales breakout is here.

The housing correction is intensifying. Today's data confirms the need for a real-estate focused stimulus package to prevent it from overcorrecting. Home values were clearly overpriced in many markets, but prices have already tumbled back to the real world - to those levels that can be fundamentally justified based on income and mortgage rates. Overcorrecting will deepen economic troubles, raise foreclosures, and lead to another round of credit freeze as bank's balance sheet deteriorates even more.

So far, the Obama team has not been very detailed about stimulus related to the housing market. However, several key members of Congress indicated adding housing measures to Obama's broad economic stimulus package, including raising the loan limit on Fannie and Freddie loans and using TARP funds to keep mortgage rates at historically attractive levels. A home buyer tax credit also is being considered.

The housing market is down. The outlook is very cloudy. A housing-focused stimulus package is a must. It's a full court press all the way up to the day the stimulus bill is signed into law.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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