Pending home sales

National Association of Realtors® Pending Home Sales Index, Seasonally Adjusted Annual Rate, 2002-2006

Here are pending home sales in an update and improvement of last year's slapdash chart. This time I call out both the annual data (2001, the index base year, was 100) and the noisier and occasionally-revised monthly series.

The Pending Home Sales Index, based on contracts signed in February, stood at 109.3 – down 8.5 percent from February 2006 when it reached 119.4, but is 0.7 percent higher than a downwardly revised reading of 108.5 in January. Earlier, mild weather caused the index to spike at 113.3 in December.

David Lereah, NAR’s chief economist, said there has been a steady narrowing from year-ago readings since last July. “If it wasn’t for the unusually bad weather in February, we’d be seeing a better performance in pending home sales,” he said. “We also may be seeing some fallout from a decline in subprime lending, but a slight improvement in the more volatile month-to-month index is encouraging – the data suggests an underlying stabilization is taking place in the housing market, but it will take another month or two to clarify.”

“Problems in the subprime mortgage market will become more apparent over time, and they will modestly depress the overall level of improvement in existing-home sales we expect as the year progresses,” Lereah said.

Pending Home Sales Show Effects of Weather, Possible Subprime Impact
National Association of Realtors, 3. April 2007

Given the for-sale-only vacancy numbers and tightening lending standards, these numbers are quite good. The ISE Homebuilders Index is up a healthy 2% today. I covered my homebuilder shorts last month and didn't pull the trigger to re-short, missing this last leg down. I still see the sector as weak given the inventory overhang and the slow-motion interplay between sales volumes and prices.

There will probably be another leg up. The optimists always find ways to convince themselves that this-time-really-we-promise, the bottom is in. Sure, between that bottom call and today's rally, the RUF underperformed the market by -20%, but hey -- that index had outperformed by around +20% by its peak in early February.

FD: no current homebuilder positions