Real estate sales volume made national news headlines this week as pending home sales fell almost 6% in September, according to the real estate trade association.
Pending home sales are measured by the number of signed contracts in a month and not necessarily closed deals. The National Association of Realtors (NAR) reported pending home sales fell 5.6% in September, which marks the fourth month of consecutive decline.
Typically first tuesday does not report pending home sales numbers since it is an extremely unreliable metric. Any number of mitigating circumstances may arise to kill deals.
However, this time the trade association seems to have the bigger picture right. Where they usually argue from the point of view of supply, eager to maintain the illusion of scarcity, this time they are admitting that the problem is lack of real demand.
We hate to say, “we told you so” but we’ve been reporting on this market misconception for a while now. Let’s take a look at the numbers in California:
- the 30-year FRM averaged 4.45% in September 2013;
- buyer purchasing power sank to a miserable –10.33;
- September home sales volume showed a steady decline, down 15% from August; and
- as of August (our most recent pricing data) low-tier homes were priced 30% higher than a year earlier.
Incidentally, Inman news reports home prices nationwide are “14 percent off their bubble-era peak.”
The writing is on the wall. Our mini-bubble appears poised to pop.
I agree with Rogers’s response and his underlying approach – it reminds us of the dangers of following national statistics in good times and bad. While they are important to indicate or explain national trends and opportunities, they should be applied to local markets very carefully (interest rates are certainly more national than home prices!). It’s easy to report on national statistics because the data is readily available. And it’s economical to report on national statistics when your readership is broad-based – you only need one reporter to cover one market. That makes it an efficient but ineffective approach (timely reporting, but not a lot of truly applicable information for buyers and sellers). Pay attention to the various stats in your own market and you will note marked differences. Only then, armed with a national and local perspective, can you make an informed decision.
Based on past events in the RE market, what we have today is a repetition. Real Estate agents manipulating the buyers to put in higher offers, so they can get the deal and the agent getting the commission. Agents inflating the market to the point where the buyers cannot afford those prices and consequently the agents find themselves out of work. It is the same old Greed that drove the last recession. It will never go away. It is inherent in the human being.
The is no home sale “bubble” and it is NOT about to burst.
Real estate is a micro-market, not a national one. While there may be over pricing in some areas of the country, the primary markets are no where near a bubble. We have experienced a typical “dead cat bounce” in real estate. The market was undervalued and bounced off the bottom, resulting high investor activity and volatile price appreciation.
The market is now “tempered” and is demonstrating typical activity following a bounce from the crash. Affordability index is still well above pre-crash highs. Interest rates are still extremely low at or near 5%. Demand for homes from homebuyers in primary metro markets is very strong and inventories are still limited. With 15% appreciation since the crash, we are still 20% away from pre-great recession highs.
What about this scenario screams bubble? Answer: NOTHING. We are poised for a very long healthy real estate sales market with excellent fundamentals.