Tuesday, March 05, 2013 / by Nathan Clark
You can take stats and figures and turn them just about any way you’d like to support just about any position you want. The saying is that numbers never lie – and, technically, they don’t – but people can lie about any numbers they want.
I’m mentioning this because of some recent numbers: the January pending home sales index as reported by the National Association of Realtors. The NAR had the index at 105.9 in January, the highest total since it climbed to 110 in April of 2010, the deadline for a federal tax credit for buyers.
The index is seasonally adjusted, as a typical January would not usually not match a typical April, let alone one in which a valuable tax incentive was driving buyer activity. Still, the index climbed 4.5 percent from a decent number in December, and it’s almost 10 percent higher than January 2012.
In case you were wondering, January of 2012 kicked off what became the best year for home sales in quite some time. So, that raises a fairly pertinent question …
What do January’s pending home sales mean for the rest of 2013?
First, a couple of caveats:
- I am not a data analyst. My real estate expertise doesn’t make me a statistics expert, so my interpretation of any numbers isn’t meant as, like, scientific evidence or anything.
- The Pending Home Sales Index as used by the NAR is based on national data, and while it might indicate overall trends, there really is no such thing as a “national” real estate market. In fact, as I’ve stressed repeatedly, real estate is maybe more local now than it was five or six years ago.
With those things in mind, you can take a look at some more specific numbers. The first being 0.1 percent, which is the rise in pending sales in the West, the only region of the country that didn’t see a significant rise in pending sales from the month before.
In the Northeast, pending sales rose 8.2 percent. In theMidwest, the national average held true at about 4.5 percent; and in the South, sales rose 5.9 percent. Why didn’t the West keep up?
It’s a simple answer, actually: That’s the region where housing inventories have already shrunk to the point that they’re affecting volume. There are markets that simply can’t support buyer demand right now. It’s fair to say that in many areas of the West, there’s already been a shift from buyers’ to sellers’ markets.
In fact, the NAR reported in January’s existing home sales report that the median home sales price nationally rose about 12.3 from the year before. However, in the West, the median home price was a whopping 26.6 percent higher year-over-year. Volume, meanwhile, was 5.6 percent lower.
In other words, the housing shortage has already hit the West. If you recall, the real estate bubble hit there first, too, as did the burst of the bubble. The rest of the country followed. It’s reasonable to expect a similar pattern this time around.
In fact, the NAR has revised down its initial sales forecast for 2013, believing now there will be fewer sales than originally anticipated but perhaps a faster rise in prices than originally forecast, too. Here’s what NAR chief economist Lawrence Yun said in a news release:
“Over the near term, rising contract activity means higher home sales, but total sales for the year are expected to rise less than in 2012, while home prices are projected to rise more strongly because of inventory shortages.”
In other words, expect there to be fewer homes on the market in 2013, and expect them to cost increasingly more. If you’re a seller or potential seller, that’s probably good news for you. But buyers are still in good shape, too.
For as rapidly as prices are rising, prices in even the hottest markets are well off their peak levels of 2005 to 2006. On top of that, as you know, interest rates on mortgages are still ridiculously low. Home affordability is still quite high.
The thing is, the pent-up demand the NAR has made reference to in the past was perhaps underestimated. It was something everyone knew was there, but as the real estate outlook improved – at least in people’s minds – more and more buyers surfaced. Maybe more than had been anticipated; pent-up demand is a hard thing to quantify.
You can bet that as the outlook becomes even rosier to the general populace, there will be more demand. If lenders relax credit standards a bit, look out. Home builders are trying to ramp up the pace of new home construction, but they are nowhere near catching up now.
The bottom line, at least as the numbers suggest, is that in parts of the country the housing shortage is already here. In other parts, it appears to definitely be coming.