Tag Archives: Lawler

Lawler: On the relationship between pending home sales and closed sales

Lawler: On the relationship between pending home sales and closed sales

by Bill McBride on 8/30/2012  

Yesterday the National Association of Realtors reported that its “National” Pending Home Sales Index increased by 2.4% on a seasonally adjusted basis in July to its highest level since April 2010.

The NAR’s PHSI did not signal the “dip” in June/July closed existing home sales, for reasons that are difficult to discern. It’s not easy to figure out “fallout” rates from the PHSI for several reasons: first, the PHSI is an index number with 2001 “activity” equal to 100, making numerical comparisons to the NAR’s existing home sales estimate difficult, especially since there is a “discontinuity” in the NAR’s existing home sales methodology in 2007; and second, the NAR’s PHSI is based on a sample size not much more than half that used to estimate existing home sales. To really delve into the relationship between pending sales and closed sales, one needs to get local data—which unfortunately isn’t available to the public in that many places.

Closed and Pending Home SalesClick on graph for larger image.

CR Note: This graph from Tom Lawler shows Pending and Closed home sales since January 2008. For this graph, Tom Lawler set both series to 100 in 2008.

More from Lawler: For fun, however, I looked at pending sales vs. closed sales data reported by MRIS for the mid-Atlantic region. While I have limited historical data, that data suggests that (1) contract fallout over the past two and a half years is up considerably from earlier periods; and (2) that increased fallout coincided with a significant increase in the share of pending sales that were “contingent. Other MRIS data/analyses suggests that a rise in the share of pending contracts that are short-sales, which (1) take much longer time to close; and (2) which have very high contract fall-out rates, has significantly impacted the relationship between pending sales and closed sales.

MRIS Closed and Pending Home SalesHere is a chart showing closed home sales by MRIS for the mid-Atlantic region compared to lagged new pending contracts, using a weighting of 60% for the previous month and 40% for two months earlier.

This chart suggests that over the last two years the number of closed home sales has been significantly lower than one would have expected based on the past relationship between past new pending sales and closed sales. While not shown here, a more “sophisticated” look at leads and lags suggests that the reason is not simply delayed closings, but is mainly contract fallout.

CR Note: It appears short sales are distorting the relationship between pending and closed sales, and the “pending home sales” report should currently be taken with an extra grain of salt.

Read more at http://www.calculatedriskblog.com/2012/08/lawler-on-relationship-between-pending.html

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How can builder confidence improve, single family starts increase sharply, and new home sales be unchanged?

How can builder confidence improve, single family starts increase sharply, and new home sales be unchanged?

by CalculatedRisk on 2/19/2012 

The Census Bureau will report new home sales on Friday, and the consensus is for sales of 315 thousand on a seasonally adjusted annual rate (SAAR) basis. This is up less than 2% from the 310 thousand SAAR sales reported in January 2011.

That seems a little puzzling. Consider the following …

First, look at the NAHB builder Housing Market Index. More builders still view sales as “poor” as opposed to “fair” or “good”, but the HMI – and all of the components – are up sharply from a year ago (the most recent report was for February, but compare January 2012 to January 2011):

Housing Market Index Traffic of Prospective Buyers Current Sales
Jan-11 16 12 15
Jan-12 25 21 25
Feb-12 29 22 30

This would seem to suggest more than a 1% or 2% increase in sales.

Second, look at the recent builder reports (from Tom Lawler):

Settlements Net Orders Backlog
End 2011 End 2010 End 2009 End 2011 End 2010 End 2009 End 2011 End 2010 End 2009
D.R. Horton 4,118 3,637 5,529 3,794 3,363 4,037 4,530 3,854 4,136
PulteGroup 4,303 4,405 6,200 3,084 3,044 3,748 3,924 3,984 5,931
NVR 2,391 2,639 2,550 2,158 1,765 2,000 3,676 2,916 3,531
The Ryland Group 1,040 909 1,666 915 775 969 1,514 1,187 1,732
Meritage Homes 894 837 1,202 749 713 621 915 778 1,095
Beazer Homes 882 549 961 724 553 728 1,309 800 950
MDC Holdings 950 865 1,109 523 519 637 1,043 842 826
Standard Pacific 782 619 943 615 428 547 681 414 599
M/I Homes 667 650 858 505 460 448 676 532 650
Total 16,027 15,110 21,018 13,067 11,620 13,735 18,268 15,307 19,450
YoY % Change 6.1% -28.1% 12.5% -15.4% 19.3% -21.3%

From economist Tom Lawler on February 7th:

The latest Census report on new SF sales showed a YOY increase in Q4/2011 sales of just 3%, and a YOY decline in Q4/2010 sales of 20.5%.

The nine-builder group’s order backlog at the end of 2011 was up 19.3% from the end of 2010.

As I’ve noted many times, Census’ methodology for measured new SF sales is not directly comparable to reports from builders. I’m guessing that part of the “stronger than Census” builder reports reflect gains in market share, but I’m also guessing that overall new home sales were a bit better than preliminary Census data suggested.

The combination of higher order backlogs, stronger sales, and unusually mild weather in much of the country is likely to result in single-family starts numbers in the first few months of 2012 that are significantly higher than “consensus.”

Total Housing Starts and Single Family Housing StartsClick on graph for larger image.

Sure enough. Single family housing starts were revised up sharply for December and were above 500 thousand SAAR in January. As Lawler notes, some of this was probably weather related, but some of the pick up was evident in the builder reports.

So if the builders are reporting a “stronger than Census” increase in sales (even accounting for market share gains), confidence is up (actually less pessimism), and single family starts are up sharply from a year ago, it seems surprising that new home sales were essentially unchanged in January.

Goldman Sachs is forecasting sales of 310 thousand SAAR in January 2012 (no change year-over-year), and Merrill Lynch is forecasting 315 thousand. I think I’ll take the over.

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