December 2017 Pending Home Sales Seasonally Adjusted Index Again Rose Marginally

The National Association of Realtors (NAR) seasonally adjusted pending home sales index again rose marginally. Our analysis says the opposite. The quote of the day from this NAR release:

… the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand. However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law….

Analyst Opinion of Pending Home Sales

The rolling averages moved into positive territory. The data is very noisy and must be averaged to make sense of the situation. There is no signs of a surge in home sales, although the trends continue to be upward. I personally do not believe the new tax laws will affect home sales next year as most people do not consider income tax savings when buying a home.

Pending home sales are based on contract signings, and existing home sales are based on the execution of the contract (contract closing).

The NAR reported:

Pending home sales index rose 0.5 % month-over-month and up 0.5 % year-over-year.

The market [from Bloomberg / Econoday} was expecting month-over-month growth of -0.3 % to 0.6 % (consensus +0.4 %) versus the +0.5 % reported.

Econintersect‘s evaluation using unadjusted data:

the index growth rate was down 2.3 % month-over-month and down 1.8 % year-over-year.

The current trend (using 3 month rolling averages) is decelerating and in contraction.

Extrapolating the pending home sales unadjusted data to project January 2018 existing home sales would be down 7.5 % year-over-year for existing home sales.

From Lawrence Yun , NAR chief economist:

…. pending sales edged up in December and reached their highest level since last March (111.3). Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018. Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now.

Sadly, these positive indicators may not lead to a stronger sales pace. Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices — especially at the lower end of the market.

In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand. However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.

Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas. This could in turn lead to both a decrease in sales and home values.