By Seeking Alpha
The reasons for the housing market downturn are in the eye of the beholder, as we will see in a moment. But whatever the reasons for it may be, the data on the housing market is getting uglier by the month.
Pending home sales is a forward-looking measure. It counts how many contracts were signed rather than how many sales actually closed that month. There can be a lag of about a month or two between signing the contract and closing the sale. This morning, the National Association of Realtors (NAR) released its Pending Home Sales Index for November, an indication of the direction of actual sales to be reported for December and January. This index for November fell to the lowest level since May 2014
“The Metro Phoenix Area housing market, seemingly immune to the slowdown plaguing other U.S. metropolitan area housing markets since late spring, is followed from mid-August thru year-end. Not only have resale transactions fallen off, new home sales were down 21 percent from mid-October thru mid-December.
“The question analysts grapple with now is: ‘Is Phoenix’s challenge the same as other areas’ challenges?’ The lack of affordability is being cited for slowdowns on the coasts and other major metro areas. Affordability is certainly lower in Phoenix now than it was in mid-summer as a result of rising mortgage interest rates. Still, the latest NAHB/Wells Fargo Housing Affordability Index suggests that in the third quarter, well above half of Phoenicians (57percent) would have been able to afford the median price of a home that sold during the quarter based upon current mortgage underwriting standards. The figure dropped from (61%) in the second quarter.
“Is a four percentage point drop significant enough to suggest the steep decline in sales activity is “the reason” here ? Unlike Metro California habitually stuck in the teens, slightly higher or slightly lower and now dropping, more than half of people can afford homes.
“Or, is the reason folks are re-evaluating options, pausing in the wake of a relative steep incline in rates that has taken place over a period of just a couple of months? The latter explanation seems more likely.”
–Jim Belfiore
