Behind the Strong Pending Sales Numbers
Last week the Pending Home Sales Index (PHSI) reported a healthy gain of 8.2% from January to February and sits 17.3% higher than February 2009. The Midwest had the strongest regional move with 21.8% jump from January to February and sits 18.7% higher year over year.
There are a couple things to highlight about the PHSI and then I will move into specifics about the Midwest numbers. Pending home sales are not yet finalized, the homes are under contract and should close in the following month or two. Additionally, the same month, year over year numbers are much more indicative of the market trend than the month to month comparisons. Real Estate is a cyclical business. When it comes to pending sales it is never a surprise to see the numbers rise as you move from January to March as the spring market picks up. The opposite is true as you move from September to December. These effects are exacerbated in regions where the seasons, specifically cold weather, influence consumers purchasing behavior. For more on the PHSI click here.
A 21.8% jump in Midwest pending sales from January to February seems like a drastic increase, but let us take a look at the factors behind this number. Snow storms in the east and midwest undoubtedly were reflected in the low January numbers. That positioned February to see the kind of jump in pending sales that was reported last week. The weather, coupled with the understanding that interest rates would be moving higher, and the home buying tax credit all chip away at the idea that the february numbers are a sign of a surge in home buying.
The year over year numbers for the midwest (up 18.7% over February 2009) show signs of recovery. However, it remains to be seen if the recovery in housing will sustain after the expiration of the home buying tax credit and the End of the FED MBS Program. I expect that as interest rates slowly move higher there will be additional downward pressure on home prices. The deeper question is whether or not the housing market can establish an equilibrium between sellers asking prices, buyers overall purchasing power, and the interest rate consumers must pay for a mortgage loan.
Please leave a comment if you have questions about what you read here or would like me to post on a specific topic. Whether or not you are a client of mine, I am happy to open this forum for discussion or to answer individual questions.
Best,
JLC
