Pending Home Sales Dissected

The big jump in pending home sales was greeted by the stock market and the clowns on CNBC with great fanfare.  What is more interesting is that the mainstream media neglects to mention the high cancellation rates which tend to undermine headline numbers.  A "pending sale" is a signed contract, contingent on financing.  As per a comment from a real estate professional in one of my chat rooms:  "For the past 9 months, appraisers have been appraising far under those agreements, on average.  Banks won't lend beyond appraisal.  Contract dissolves.  The real estate industry does not report this fact."  Anothger real estate professional confirmed this with:  "Pending sales can be a leading indicator, but not in the real estate market we are in now.  Prices are still not even close to [market] clearing prices.  F$%king banks are holding back foreclosed inventory.  If they did release, another big drop.  But we are also running out of ready, willing and able buyers at the low end."

So there you have it, from the horses' mouths.  The industry loves to report a "soft" statistic like "pending" sales, but how about the percent of contracts that fall through because the financing failed.  Based on the latest numbers reported by new homebuilders, cancellation rates are still running in the 20% range. The two observations above reinforce my thesis that the "bounce" in housing over the past few months has largely been the result of a last minute rush into homes by first timers looking to take advantage of the tax credit.  I would also assert that, based on the past couple weeks' mortgage applications index, home sales are about to take a cliff-dive.

Anectdotally, over the past couple weeks, myself and others are seeing "for sale/for rent" signs popping up all over Denver like spring weeds.  Not only that, the homes in the over $500k segment do not seem to be moving at all.  As for rents, if I could break the lease on my townhome, I would be able to move into an even higher quality townhome on an even more desirable block, with mountain views, for less than I'm paying currently.  Rents are falling fast - home prices will follow.

If you MUST buy a home because you can't stand the down payment burning a hole in your pocket and you want to take advantage of FHA subprime lending standards, at least wait until after the holidays.  Foreclosures will be flooding the market, desperate sellers will be listing their homes and prices are going to plummet again.  At the very least, please ignore the mainstream media headlines and imbeciles on CNBC/CNN/FOX Business/Bloomberg.