The number I like to watch most closely is the Pending Home sales as reported by the National Association of Realtors (NAR). This number reflects the homes that have entered contract, rather than those that have closed. This significant difference is pending reflects real-time – those that just went under contract, whereas sold figures are reporting closings and those homes actually entered contract some months back – think about the typical 30-60 day close of escrow as the time line.
Yesterday’s figures of a 1.8% decline, was below analysts’ expectations which actually anticipated an increase of around 3%. On the surface the figure looks terrible and further evidence we are a long way from being out of the woods, and that the housing recovery, saddled with mountains of foreclosures, is a long way away. Diana Olick of CNBC and others point to the recent foreclosure moratorium by a few major lenders as reasons for the slow down. I do not subscribe to this at all. Personally I think that’s just an excuse. Not every market is dominated by distressed properties so not every market’s slowdown can be attributed to a foreclosure moratorium that didn’t even start until mid month, didn’t include all lenders and even for those lenders it did include, didn’t include all states.
I know that I am in the minority here. In fact if you ask most if my colleagues, they predict a continued decline. But let me explain why I am neither surprised, nor particularly concerned by this number. First of all, there is a lot of misinformation that confuses the home buying consumer. Confusion leads to insecurity, insecurity leads uncertainty (this is best said with a Yoda accent by the way). This in turn causes many home buyers to sit on the fence rather than jump in feet first on their biggest investment of their life. Second, whoever said we would hit bottom and immediately go up or for that matter, whoever said the bottom would be smooth? On the contrary, during the early to mid 1990’s, after that last great real estate correction, we bounced along the bottom from 1994 to 1997. By 1997 we started seeing consistency in sales and steady improvement in market conditions. But during those 3.5 years of bouncing along the bottom, we did just that: bounce. Some months were stronger than others. My wife Tama tells the story of her great-grandfather who was a gambler. Some days her grandfather would get dropped off at school in a Rolls Royce with a driver, and other days he had to walk in the Detroit snow. So goes any real estate recovery. To expect steady improvement at a time of so much uncertainty, quite simply defies logic. Rather than economists having expectations of improving numbers, perhaps they should say they are hoping for improved numbers. Hope leads to a lot less disappointment. I’ve been hoping for years that my San Francisco Giants would one day win the World Series, but to expect it, would be foolish, and would demonstrate a clear lack of understanding about just how difficult winning the Series is. So it is in our housing recovery. We’re hoping things will get better soon and not get worse, but to expect that there won’t be bumps in the road to recovery is foolish, and clearly demonstrate how difficult the recovery will be.