Existing-home sales are projected to trend up in 2008

The NATIONAL ASSOCIATION OF REALTORS® has developed the Pending Home Sales Index (PHSI), a new leading indicator of housing market activity.

Based on the data from Multiple Listing Services (MLSs) and large brokers, the index provides advance information on future home-sales activity and offers more solid information on changes in the direction of the market than any of the indicators currently available.

Specifically, Pending Home Sales become Existing-Home Sales one-to-two months later. This means that we can use an index derived from Pending Home Sales to predict actual home sales activity. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years.

NAR's Pending Home Sales Index (PHSI) is released during the first week of each month. It is designed to be a leading indicator of housing activity.

According to the Pending Home Sales Index released on December 10th existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise.  However, a recovery for new-home sales is unlikely before 2009.

Pending Home Sales

Year
 
United States
Northeast
Midwest
South
West
United States
Northeast
Midwest
South
West

2004
 
120.9
109.7
118.6
126.9
122.9
*
*
*
*
*

2005
 
124.4
108.6
116.6
134.9
128.8
*
*
*
*
*

2006
 
111.9
98.6
101.5
127.0
109.6
*
*
*
*
*

 
 
Seasonally Adjusted Annual Rate
Not Seasonally Adjusted

2006
Oct 
106.8
90.7
96.8
122.6
105.0
103.0
88.4
92.4
115.0
106.7

 
Nov 
108.4
86.6
100.9
125.6
106.3
89.6
68.3
80.1
101.8
97.1

 
Dec 
113.3
93.1
102.6
132.1
110.6
72.0
54.9
61.5
86.8
73.1

2007
Jan 
108.5
100.4
100.1
116.7
110.8
91.2
78.4
81.2
98.0
101.2

 
Feb 
109.7
99.1
103.0
124.0
102.4
98.2
88.4
93.1
109.2
94.1

 
Mar 
104.8
99.7
95.9
115.2
101.8
119.4
118.9
110.6
131.1
110.8

 
Apr 
101.2
89.7
98.1
116.0
90.3
118.6
109.4
118.0
137.8
96.1

 
May 
97.5
93.1
89.4
106.6
95.4
117.5
119.4
108.2
129.0
108.1

 
Jun 
102.4
96.0
92.5
111.3
103.9
120.5
115.7
110.9
134.4
112.7

 
Jul 
91.4
84.3
80.4
108.1
82.5
101.4
91.3
90.3
121.5
89.6

 
Aug 
85.5
77.3
78.1
97.8
80.6
94.6
82.6
87.4
106.4
93.1

 
Sept r
86.7
69.5
86.7
99.3
80.5
79.6
64.1
79.2
89.1
77.0

 
Oct p
87.2
80.6
85.5
91.6
87.3
85.1
78.0
82.1
86.9
91.0

 
vs. last month:
0.6%
16.0%
-1.4%
-7.8%
8.4%
6.9%
21.7%
3.7%
-2.5%
18.2%

 
vs. last year:
-18.4%
-11.1%
-11.7%
-25.3%
-16.9%
-17.4%
-11.8%
-11.1%
-24.4%
-14.7%

 
 
 
 
 
 
 
 
 
 
 
 

 

The Washington Post reports (Kenneth R. Harney 12/08/2007) that borrowers who can’t come up with a sizable down payment and whose credit scores are below 680 are being squeezed in the mortgage market.

Fannie Mae and Freddie Mac are charging fees that are significantly higher than before to borrowers with the lower scores and with down payments of less than 30 percent. Many of these borrowers formerly were considered “prime” credit applicants.

Simultaneously, mortgage insurers MGIC and PMI Group are raising premiums on consumers who have low down payments and scores in the mid- to upper 600s.

Together these penalties total thousands of dollars, payable either at settlement or in higher interest rates.

"This is outrageous," says Steven Moore, a mortgage broker with 1st Solution Mortgage in Falls Church. "On a loan of $300,000 and with a credit score of 675 – which is not a bad score – and a 75 percent loan-to-value ratio (25 percent down payment), the cost is an additional $2,250 per loan."

Meanwhile former Federal Reserve Chairman Alan Greenspan said that the odds of recession are “clearly rising” and economic growth is “getting close to stall speed.”

During an NPR News’ Morning Edition interview with Greenspan, which aired Friday morning, he said: "We are far more vulnerable at levels where growth is so slow than we would be otherwise. Indeed, it's like someone who has an immune system that's not working very well is subject to all sorts of diseases and the economy at this level of growth is subject to all sorts of shocks."

Greenspan rejected criticism that his policy actions helped to feed a housing boom that eventually went bust. To have prevented such euphoria in housing that fed a bubble in prices, Greenspan said the Fed would have had to jack up interest rates so high that it would have damaged the economy.

"That would have broken the back of the economy, and brought the housing boom down," Greenspan said.

Many economists agree with Greenspan according to a report in USA Today (Barbara Hagenbaugh 12/12/2007) economists are predicting that a recession is inevitable.

"A mild U.S. recession is now likely, with no growth for the year ahead," Richard Berner, Morgan Stanley chief U.S. economist, said in a note to clients this week.

Global Insight U.S. Research Director Nigel Gault says the economy is in the "danger zone," with no growth in the fourth quarter. A shock, such as a renewed surge in oil prices, would push the economy into recession, he says.

Housing continues to be the single most serious drag on the economy, economists say. The Mortgage Bankers Association last week said that nearly 20 percent of higher-cost subprime adjustable mortgages were past due in the third quarter. The number of prime mortgage loans in default is also climbing.

According to Los Angeles Times (Peter G. Gosselin 12/13/2007) The Federal Reserve announced an agreement Wednesday with four foreign central banks to inject billions of dollars into the world’s financial system to make more money available for big banks to lend to smaller ones.

The Fed said it would lend at least $40 billion to cash-strapped U.S. banks starting next week, and make $24 billion available to the European Central Bank and the Swiss National Bank to alleviate demand for dollars in Europe. It also has agreed to make dollars available to the Canadian and British central banks.

The move is seen as an innovative approach to ending the credit crunch and warding off recession than just lowering the benchmark interest rate.

"This Fed has surprised people with its ability to think outside the box," says Jay H. Bryson, global economist for Wachovia Corp. "It's trying to take a more targeted approach to financial problems, instead of the sledgehammer of cutting the benchmark federal funds rate.

By themselves, the Fed actions will not reverse slumping home prices or erase trouble with mortgage-backed securities that have fallen out of favor with investors because of the subprime home loan crisis. But analysts say that the concerted effort by the central banks would help the global financial system buy time to fix the problems on its own.