If you didn’t know any better, you would have looked at this week’s Case-Shiller and NAR’s Pending Home Sale Index and conclude the housing market recovery had reversed and was still in decline. Nothing however could be further from the truth. While true, Case-Shiller did show a continued deterioration in pricing, don’t forget that Case-Shiller is a backward looking index. That is, the data is based on reported sales or closings, which by definition reflect actual contracts that are 30-60 days old and in the case of closed short sales even as old as 6 months. Not exactly up to the minute information. Not unlike the bell weather adjustable mortgage Cost of Funds Index or COFI, Case-Shiller lags behind the data. In the case of COFI, borrowers benefit from the slow moving index when rates are rising but don’t when rates are in decline. With Case-Shiller, the lag is neither harmful nor beneficial, it’s just behind. Further exacerbating this discrepancy is the nature of Case-Shiller which looks to the 20 City MSA (Metropolitan Statistical Average) for its data, which includes both slow sub-markets like inland California for example, when looking at cities like Los Angeles and San Francisco. Anyone who is selling in these urban centers will tell you, the market is anything but slow and prices are rising, not in decline. However, averages are just that, a blend of data, providing a general idea of market conditions.
NAR’s Pending Home Index is much more on the pulse of change so the decline in pending numbers should be a concern, if the reason for the decline were not so obvious: low inventory. While I can’t speak to all markets, I can say our local inventory is so low it makes perfect sense that the pending sales numbers were lower too. Without product to sell, sales numbers have to be down. Clearly this is great for triggering rising prices, but low inventory poses its own sets of problems ironically not the least of which is a stymied housing recovery. How’s that, you ask? A housing recovery requires steady appreciation, sales and overall property movement. Without sales, how can there be a recovery at all? Moreover, the threat of unstable price appreciation is a real concern. Slow and steady is a good thing, rapid and reckless is not. Further we need steady home sales to boost the economy, which in turn leads to more sales of other things. Home sales spur all elements of the economy, from home improvement purchases at Home Depot and Lowe’s, to remodeling and furniture sales. The key to our Nation’s economic health is the exchange of goods and simply put, the economy depends on it. So for Case-Shiller and NAR’s PSI numbers, I am reminded of MAD Magazine’s Alfred E. Newman and his famous line, “What, me worry?” and to Mr. Newman I say, “Not so much.”