Thursday’s 4.6% decline in the Pending Home Sales, as reported by the National Association of Realtors, is in stark contrast with the 2.5% growth in GDP. This is the strongest evidence yet of the effect of Congress’ ineptitude on the debt ceiling debacle this past July and August. The damage to the nation’s confidence cannot be underestimated. Sure Wall Street has been focused on a slowing China and a debt laden Europe, but here on Main Street, we by and large couldn’t give a rat’s rear. But when our elected officials threatened to shut down our government because they couldn’t agree on the inevitable, it scared the snot out of us. That’s what happened and you see that in the decline in pending sales.
Looking back, it seems so obvious. Job growth and GDP were on the rise in spring and early summer. Here in the RealEstateConversation.com, I said I thought the worst was over; that was in June. Then the debate on the debt ceiling threatened to shut down the government and force the US to default on its debt. You think Ichabod Crane was scared by a headless horseman? Try a headless government. And this is not a specific slap at President Obama, on the contrary it’s more of an indictment against the entire Federal Government. Think of the States as the body and the Feds as the head. We became terrified of the headless horseman. And what happened? Frozen with fear, job growth halted and reversed; housing stalled, just as it appeared that maybe it was picking up steam; the markets retreated and growth collapsed. We went from percolating to stagnant.
Fast forward to Thursday’s numbers. GDP grew unexpectedly at 2.5%. Corporate profits are up across the board. Retail sales for the holiday season are expected to be up as well. Why then was housing down?
Pending home sales numbers are as close to real time as you can get in real estate numbers analysis. Unlike sales numbers which are backwards looking – looking at homes that have closed after 30-60 days under contract, pending numbers are a reflection of current homes under contract; people who bought in the last 45 days. In this case, people who bought in September. Said another way, it reflects sales in the wake of threatened government shut down. My assessment for our area, the Conejo Valley: Westlake Village, Thousand Oaks etc, was that prices took a 2-3% haircut almost immediately – and when you’re looking at median prices around $700,000, that’s not chump change.
But what about the he 2.5% GDP growth that surprised analysts? My take on this is that we are starting to get back to where we would have been if Washington hadn’t been so inept. The shock and fear of the government stoppage has passed. We are getting back to the day to day dealings with our lives. Sure Occupy Everywhere is concerning. Many of our youth can’t find work while saddled with exorbitant student loan debt; our Vets are increasingly detached from society, inadequately cared for after 10 years of war overseas and many are homeless; and unemployment remains excessively high at 9%, however my suspicion is that we are back to where we should have been in July had the Headless Horseman not chased our confidence right out of town.
So as we prepare for the young ghouls and goblins this Halloween, let’s hope for a better 4th quarter; one filled with job growth and an increase in home sales; that our bags are filled with sweet treats and not rocks and that the forthcoming holiday season is more like the Frank Capra film, It’s A Wonderful Life, where we rally around one another, and less like the Legend of Sleepy Hollow. Now if only the NBA players and owners would make nice, because they’re certainly not helping anyone either.