WHY ARE PENDING HOMES SALES DOWN?

The National Association of Realtors reports that the Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 5.6 percent to 101.6 in September from a downwardly revised 107.6 in August, and is 1.2 percent below September 2012 when it was 102.8. The index is at the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings. What’s going on?

First of all, inventory levels continue to be low all over the country.  This is a drag on sales because consumer choice is limited, even though interest rates are still extremely attractive and home values remain below the long term historical trend line.  Potential sellers are not listing their homes. What’s going on?

Buyers, on the other hand, are being much more cautious than 18-24 months ago. Their caution goes beyond the limited choice of homes available to buy. Despite the low mortgage rates and the affordability of homes, they are still cautious. What’s going on?

The caution from buyers to buy and sellers to list is stemming from the same source – uncertainty of the future.  Blame that on Washington DC.

Economic indicators to be released next month will more accurately show the impact of October’s government shutdown. But NAR chief economist Lawrence Yun says concerns over the government shutdown have already played a role in the slowdown. “Government and contract workers were on the sidelines with growing insecurity over lawmakers’ inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases,” Yun said

Our housing recovery still remains quite fragile.  Let’s hope that Washington keeps a steady hand “on the wheel”.