April 2014 Pending Home Sales Improves But Still Not Good

The National Association of Realtors (NAR) seasonally adjusted pending home sales index for April 2014 again shows improvement over last month.  Unfortunately, the headlines don’t mention that pending home sales index level is down from a year ago, and our analysis suggests that May 2014 existing home sales will not be good.

• The current trends (using 3 month rolling averages) continues to show a contraction from the rolling averages one year ago in pending home sales (as well as actual existing home sales).
• Extrapolating the unadjusted data to project May 2014 existing home sales, this would be a 10.1% contraction year-over-year existing home sales.
• Pending home sales are based on contract signings, and existing home sales are based on the execution of the contract (contract closing).
• After 28 months of year-over-year growth, pending home sales according to the unadjusted data contracted year-over-year for the sixth month in a row.

The NAR reported April 2014 pending home sales index was up 0.4% month-over-month and down 9.2% year-over-year. The market was expecting month-over-month growth of -0.5% to 4.2% (consensus 1.0%) versus the growth of 0.4% reported.Econintersect‘s evaluation of the unadjusted data shows the index growth decelerated 2.0% month-over-month and down 9.4% year-over-year.

Unadjusted 3 Month Rolling Average of Year-over-Year Growth for Pending Home Sales (blue line) and Existing Home Sales (red line)

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From Lawrence Yun , NAR chief economist:

…. expects a gradual uptrend in home sales. Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective home buyers’ confidence. An uptrend in closed sales is expected, although some months will encounter a modest setback. I project the 30-year fixed-rate mortgage to trend up and average 5.5 percent next year. The extent to which higher mortgage interest rates will impact housing affordability and sales depends on income growth, ongoing improvement in the labor market and any change to mortgage underwriting conditions.