Pending home sales plummet 11.6% in April

posted at 10:25 am on May 28, 2011 by Ed Morrissey

Economic forecasting has become as reliable as weather predictions these days, especially at Reuters, so it’s no surprise that the news agency combined the two in the latest report from the housing markets.  Pending home sales dropped over 11% in April, which Reuters blames on tornadoes in the southern part of the country (via Instapundit):

Pending sales of existing U.S. homes dropped far more than expected in April to touch a seven-month low, a trade group said on Friday, dealing a blow to hopes of a recovery in the housing market.

The National Association of Realtors Pending Home Sales Index dropped 11.6 percent to 81.9 in April, the lowest since September. Pending home sales lead existing home sales by a month or two. …

Pending home sales in the South, which was ravaged by tornadoes, dropped 17.2 percent. Sales were also down in the Midwest and the West.

Reuters expected only a 1% drop, which would have been indication enough of continuing trouble, but seems unrealistic given current conditions.  Earlier this month, Zillow issued a bleak report on the housing markets, noting that foreclosures are rising again and home values once again dropping.  Negative equity is also increasing as a result, which means that homeowners are more or less trapped in their current houses, as they cannot afford to take a loss to buy another home.  We saw existing-home sales at nearly flat in April, down only 0.8%, but the sharp drop in contracts in this report means we will see more plunges in that series later.

The flooding in the South probably had more impact than the tornadoes, but the real problems in the housing markets are a glut of inventory in new homes and resales, and a lack of qualified buyers.  That’s why inventories across the board rose 9.9% to 3.87 million, more than nine months of sales at current sales rates, up from 8.3 months in March.

These issues won’t improve until we get more qualified buyers in the system, and that won’t happen until we get the job creation engine firing on all cylinders.  Thanks to aggressive regulatory expansion by the Obama administration, that day looks farther and farther away.

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Where’s the “Unexpectedly”

SaintGeorgeGentile on May 28, 2011 at 10:30 AM

Reuters expected only a 1% drop

And it was 11.6%.

Seriously, where are they getting their economics people? I could literally throw 100 darts at a dart board and do better than that. I’d have been closer than Reuters with more than half of my darts.

forest on May 28, 2011 at 10:32 AM

Mike Shedlock at Townhall.com notes:

NAR chief economist Lawrence Nun blames banks for “holding onto huge cash reserves” as the primary reason for the latest plunge in housing. He also cites the weather, oil prices, a temporary soft patch, and everything but motherhood and apple pie.

-snip-

In spite of what the Fed or the FDIC may want you to believe, many banks are capital impaired. They hold massive amounts of garbage on their balance sheets (especially real estate and commercial real estate), at marked-to-fantasy prices, not marked-to-market prices.

Del Dolemonte on May 28, 2011 at 10:33 AM

The flip side of the flooding/tornado damage is that there will be lots of new construction to replace/repair the damage, which will be good for the economy going forward.

txmomof6 on May 28, 2011 at 10:33 AM

Economic forecasting has become as reliable as weather predictions these days,

Nope, I disagree… weather reports have been far more accurate. Although, what the economic “predictors” have been doing is saying that there’s no chance of rain, despite radar showing a huge front coming across on the map right behind them, the sky dark grey, thunder and lightening rumbling, then the next morning saying we “unexpectedly” had rain.

Tuari on May 28, 2011 at 10:35 AM

The flip side of the flooding/tornado damage is that there will be lots of new construction to replace/repair the damage, which will be good for the economy going forward.

txmomof6 on May 28, 2011 at 10:33 AM

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

The parable of the broken window was introduced by Frédéric Bastiat in his 1850 essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) to illustrate the hidden costs associated with destroying property of others. The parable, also known as the broken window fallacy, demonstrates how the law of unintended consequences affects economic activity people typically see as beneficial.

the_nile on May 28, 2011 at 10:37 AM

This is what a recovery looks like.

artist on May 28, 2011 at 10:44 AM

Where is Bwarnee Fwank to assuah us thwat thwa hwousing mwahket is fwundahmwentuwee swownd, jwest wike fweddie und fwannie?

Awftah awall, if twhere’s anythwing Bwarnee shwoud be an expppurt at it’s fwannies.

(Translations to English from Bostonian available free of charge – just contact the Turfmann Translation Bureau)

turfmann on May 28, 2011 at 10:44 AM

B.S. on the Tornadoes and Flooding, unless one believes the regions affected account for 10 of every 11 home sales.

A Balrog of Morgoth on May 28, 2011 at 10:44 AM

Take advantage of it if you can. We’re looking to purchase the material package for a log home as we speak. I’m also trying to lock in our last builder to an agreed market price to put it together.

If you have money to use right now, property and new home is a good idea.

hawkdriver on May 28, 2011 at 10:47 AM

Where is Bwarnee Fwank to assuah us thwat thwa hwousing mwahket is fwundahmwentuwee swownd, jwest wike fweddie und fwannie?

Awftah awall, if twhere’s anythwing Bwarnee shwoud be an expppurt at it’s fwannies.

(Translations to English from Bostonian available free of charge – just contact the Turfmann Translation Bureau)

turfmann on May 28, 2011 at 10:44 AM

Bawney sucks. That’s all.

VegasRick on May 28, 2011 at 10:47 AM

Money is still very tight as well. Credit scores are overall lower, yet qualification requirements are tougher than ever.

At least that is one a loan guy was saying. And the government has made it illegal even for private investors to loan to someone with a foreclosure for 3 years. Same source…

petunia on May 28, 2011 at 10:50 AM

the_nile on May 28, 2011 at 10:37 AM

Was thinking the same thing.

All of these people will have to spend their money and savings replacing their lives, insurance companies will pay out monies they might have used for other stuff, etc. – all of that money won’t be available for real economic activity.

catmman on May 28, 2011 at 10:50 AM

Over the course of the past 3 years we have lost over $100k in savings and investments. Thanks obama. We’re never going to be able to crawl out of this massive hole you dug since taking office.

You are awesome. “I don’t care what you say Sarah Palin is stupid and Barack Obama is awesome”.

Key West Reader on May 28, 2011 at 10:54 AM

petunia on May 28, 2011 at 10:50 AM

Tell them to go with and FHA. Here in South Florida,it’s a 640 FICO,3.5% down,4.5% fixed. I’ve been selling some nice homes under $200,000. Wells Fargo is parting with the $$$.
Some are holding out for another “rock bottom”, but mainly they are worried about their jobs and the economy.

katy the mean old lady on May 28, 2011 at 11:08 AM

The flooding in the South probably had more impact than the tornadoes, but the real problems in the housing markets are a glut of inventory in new homes and resales, and a lack of qualified buyers.

CRA and the “Frankenstein” policies will have to return to increase the “qualified buyers”. While the media wrote for months how the speculators and hedge-funders were responsible for the housing crash, I would submit it was always the “low bar” that Frank and the regulators set (enabling hundreds of thousands to purchase homes) became the source for hedgefunders to prey on. Watch for the Obama and Liberal Democrats to force banks to ease their lending policies—via the regulators—with little recourse from the House or a “do-nothing” Senate.

Rovin on May 28, 2011 at 11:15 AM

Home prices still have farther to go, if for no other reason than the fact that their share of household spending must give way to rising food and energy costs.

ernesto on May 28, 2011 at 11:17 AM

Home prices still have farther to go, if for no other reason than the fact that their share of household spending must give way to rising food and energy costs.

ernesto on May 28, 2011 at 11:17 AM

But the summer of recovery started last year already and there’s no inflation…

the_nile on May 28, 2011 at 11:22 AM

My friend is a real estate broker who has prospered because he has focused on property management in San Diego for over 25 years… He has a home sale in escrow for the first time in 2 YEARS…

The Obama Recovery… it is going to be like this until he gets voted out of office…

Khun Joe on May 28, 2011 at 11:39 AM

Home prices still have farther to go, if for no other reason than the fact that their share of household spending must give way to rising food and energy costs.

ernesto on May 28, 2011 at 11:17 AM

The factor to watch for, however, is inflation. Locking down a low 30 year mortgage and a pre-high inflation price is what I am thinking right now.

otoh, if the real estate market really collapses as all the homes people are desperately trying to keep come onto the market at “jingle-mail” prices, a long term mortgage on underwater property isn’t much of a deal!

iconoclast on May 28, 2011 at 11:41 AM

Tell them to go with and FHA. Here in South Florida,it’s a 640 FICO,3.5% down,4.5% fixed. I’ve been selling some nice homes under $200,000. Wells Fargo is parting with the $$$.
Some are holding out for another “rock bottom”, but mainly they are worried about their jobs and the economy.

katy the mean old lady on May 28, 2011 at 11:08 AM

I don’t really know, I just was talking to a lender… not a mortgage broker, but he’s some kind of private money guy.

He probably had limited knowledge. He was mostly complaining that the government was regulating who he could invest in with private money. He thought it was none of the government’s business how he used his money.

petunia on May 28, 2011 at 11:47 AM

katy the mean old lady on May 28, 2011 at 11:08 AM

Actually, come to think of it, there have been several sold signs in my neighborhood. Someone is loaning money.

Are sales picking up in Florida? Because that was one of the hardest hit.

So my source probably didn’t know anything about FHA kind of loans.

petunia on May 28, 2011 at 11:50 AM

Are sales picking up in Florida? Because that was one of the hardest hit.

So my source probably didn’t know anything about FHA kind of loans.

petunia on May 28, 2011 at 11:50 AM

As long as it is provable $$ the goverment can pound sand. We just had a lot of people with money in big suitcases. Uncle Sam frowns on that!
I have a nice pipeline of legal immigrants from Central and South America. I sell many in one area based on the schools. A-rated elementary, middle and high school.

katy the mean old lady on May 28, 2011 at 12:07 PM

My friend is a real estate broker who has prospered because he has focused on property management in San Diego for over 25 years… He has a home sale in escrow for the first time in 2 YEARS…

Khun Joe on May 28, 2011 at 11:39 AM

Boy, do I know that feeling. I went the property manager route up until a year ago. Life draining. Nw it’s around 2 sales a month.
Surviving on rentals for the presently foreclosed. Some have had real financial setbacks, but most went way over their heads during the boom. The dog could have had a mortgage then.

katy the mean old lady on May 28, 2011 at 12:15 PM

since at least since last Jun “No unemployed candidates will be considered at all,” has become a mantra across America and especially here in the DFW area.

Even young G.I.s coming out of the service are considered “unemployed” and treated accordingly.

Forty percent of the nation’s unemployed – some 4.4 million people – have been out of work for a year or more, the highest level since World War II.

This is very disturbing and a bad sign that we are facing a new demographic in America, the “Terminally Unemployable.”

The question lots of people are afraid to ask is: “what if this is the “new normal”?” It is normal in most (all?) European countries, high unemployment for decades, people on the dole from school to death and crushing taxes and government regulation.

It can happen here.

E9RET on May 28, 2011 at 12:31 PM

Boy, do I know that feeling. I went the property manager route up until a year ago. Life draining. Nw it’s around 2 sales a month.
Surviving on rentals for the presently foreclosed. Some have had real financial setbacks, but most went way over their heads during the boom. The dog could have had a mortgage then.

katy the mean old lady on May 28, 2011 at 12:15 PM

BoA was lending to illegals during the boom.

Key West Reader on May 28, 2011 at 12:33 PM

Obama has done enough to deserve a recession of his own rather than one he shared with the evil devil who preceded him. It is time he achieved his wish.

burt on May 28, 2011 at 12:38 PM

The flip side of the flooding/tornado damage is that there will be lots of new construction to replace/repair the damage, which will be good for the economy going forward


Many people believe this but I’m not so sure. First, that new money has to come from somewhere, and whatever it was previously doing, it’s more likely it was being more productively used, then in just getting back to even by rebuilding perfectly good homes.

Fred 2 on May 28, 2011 at 1:04 PM

Pending home sales dropped over 11% in April, which Reuters blames on tornadoes in the southern part of the country (via Instapundit):

Mother Nature is clearly a racist, for causing the housing market to plummet under a black president.

I think we can all agree that these weather problems are primarily due to the color of our president’s skin.

Vyce on May 28, 2011 at 1:50 PM

It is called the “Obama Effect”

As in:

How is the economy?
It got Obamahed.

How are housing sales?
They got Obamahed.

How is the United States?
It is getting Obamahed.

Use it whenever bad news comes out and maybe next year they will include it as a new word in the dictionary.

albill on May 28, 2011 at 2:06 PM

What I am having trouble understanding is why May tornadoes affected April housing sales. First of all, a tornado isn’t like a blizzard. A blizzard impacts people’s housing search for potentially a couple of weeks. A tornado lasts all of about 15 minutes. I can’t think of any huge devastation that happened that would have prevented people shopping for homes in April. May, sure, in some limited housing markets, but things lime Montgomery Alabama happened at the very end of the month (April 27) and would not have had a national impact on pending sales for the entire month.

I agree that flooding probably had more of an impact on homes being sold than tornadoes did and had an impact over a much broader area.

crosspatch on May 28, 2011 at 4:31 PM

crosspatch on May 28, 2011 at 4:31 PM

Flooding, yeah, maybe, but we’re talking about a lot of places where there were no floods. When housing sales or this or that number goes down in the North (or unemployment/fuel prices up), it’s always because of snow.

BS.

Our system is failing.

Dr. ZhivBlago on May 28, 2011 at 6:28 PM

While the media wrote for months how the speculators and hedge-funders were responsible for the housing crash, I would submit it was always the “low bar” that Frank and the regulators set (enabling hundreds of thousands to purchase homes) became the source for hedgefunders to prey on…

You don’t seem to know much about how the lending industry operated pre-2008. Regulators refused to listen to many well-known consumer groups that demanded *more* regulation, not less, because so many low income families were obviously taking out loans that would become unaffordable once the short-term teaser rate had expired. Many of these families never understood the actual terms of their home loan and were at the mercy of greedy brokers trying to maximize their commissions. Remember, local banks and brokers had nothing to lose because even the worst sub-prime loan could be ‘securitized’ by a Wall Street firm and resold to investors with a triple A credit rating.

Your belief that banks were forced into low income lending practices is just absurd- witness major banks such as Chase that had to adhere to federal low income lending guidelines yet were nearly unscathed by the housing bubble. The banks that decided to remove sensible risk parameters from the lending policies did so out of greed, not because of federal law.

I know that Rush and Glenn have popularized your opinion but no one who actually witnessed the crash on Wall Street would agree with that kind of political fantasy. You can read a book about what actually occurred, such as Too Big To Fail, which is also available as an HBO movie. Either one might open your eyes.

bayam on May 28, 2011 at 8:00 PM

Seriously, where are they getting their economics people? I could literally throw 100 darts at a dart board and do better than that. I’d have been closer than Reuters with more than half of my darts.

forest on May 28, 2011 at 10:32 AM

I did some cursory digging on this and found that a few of those they ask are actually economic -journalists- . They need to provide a complete list of the boobs they use, so we will know who avoid listening to.

Quite a few citizens have become aware of the fact that the economy in all its components will continue to wither and die as long as the idiot in the white house continues to poison the private sector.

It will be a long slow and agonizing death and there may be no recovery for a very very long time.

dogsoldier on May 28, 2011 at 8:03 PM

bayam on May 28, 2011 at 8:00 PM

HBO, the network that made a hero out of Jack Kevorkian. Erm, no thanks.

hawkdriver on May 28, 2011 at 8:07 PM

bayam on May 28, 2011 at 8:00 PM

Your attack on that person is without merit. Obama himself spearheaded a legal assault on banks to force them to lend to dubious buyers. Further, Frank, Dodd janet reno and clinton all threatened lenders with legal action if the refused to succumb to the CRA.

Nice try though.

dogsoldier on May 28, 2011 at 8:08 PM

The housing bubble didn’t start until the invention of Ginnie Mae, which served to ‘securitize’ loans. That put the federal government in a position to put a risk assessment on mortgages… this, in turn, cut out the truly conservative local lender by allowing national banks to take on government guaranteed risk mortgage packages which local lenders wouldn’t touch. This created the S&L crisis and bailout. That started in the late 1960′s and the S&L implosion of the 1980′s should have served as a warning that something was seriously wrong with federal housing policy.

At the same time the IRA was being put in place to create a more secure place to put money for investment. Prior to that the home was seen as that secure place due to its very low increase rate of appreciation. When that was no longer the case and the government was now securitizing riskier mortgages the idea of a home as something other than a place to live started to take shape. If the first bubble of the destruction of the S&Ls was bad, this one, the government backed injection of higher risk loan guarantees into the market, would be a disaster.

By the 1990′s things were getting out of whack as home appreciation rates started to go up even as foreclosure rates remained steady and build-out rates for new homes increased. Because the government subsidized this via the mortgage interest deduciton write-off, households started to take on higher value risk in home purchases. Thusly risk was being put into the market not only by securitization but via subsidies, which were both helped by large financial institutions that were being told to put out higher risk loans to people with fewer assets. Just before the bubble collapsed the phenomena of NINJA loans had been born as these were people with No Income, No Job or Assets.

One cannot point to ‘conservative’ national financial institutions as they had killed off the most conservative lenders in the market with the help of government regulations: the S&Ls that had local portfolios and local managers for them. Up to the mid-1960′s local banks had individuals who knew neighborhoods and communities, and had an interest in seeing them remain a cohesive part of society. At the end of the S&L crisis there were only instititutions looking to make money and were less willing to extend latitude towards local community needs and problems. That is why the CRA was such a huge mistake: it attempted to put a national band-aid on something that had been caused by regulations in getting the national banks to try and understand local communities.

It didn’t work.

We are still left with those regulations for home mortgage write-offs, IRA’s, and government guaranteed risk assessment. Until those get removed from the market, there will be no easy recovery from this bubble. It is not JUST the big banks, but the work of those banks with government to help ‘securitize’ mortgages and move them out of the traditional local lending arena. Thus Ginnie, Fannie, Freddie and Sallie all must go… the entire FHA must go… and if you want strong local communities then the commercial banks should tend to commercial business and get out of the residential lending arena as they suck at it, which means getting rid of the regulations that empower them to do that. All of that will at least put a final floor back into housing prices and the slow growth of values will start over, again… the prices of pre-2007 bubble numbers aren’t coming back as they were unsustainable.

ajacksonian on May 28, 2011 at 8:35 PM

I know that Rush and Glenn have popularized your opinion but no one who actually witnessed the crash on Wall Street would agree with that kind of political fantasy. You can read a book about what actually occurred, such as Too Big To Fail, which is also available as an HBO movie. Either one might open your eyes.

bayam on May 28, 2011 at 8:00 PMI know that Rush and Glenn have popularized your opinion but no one who actually witnessed the crash on Wall Street would agree with that kind of political fantasy. You can read a book about what actually occurred, such as Too Big To Fail, which is also available as an HBO movie. Either one might open your eyes.

bayam on May 28, 2011 at 8:00 PM

Only the fact that Fanny and Freddy would buy these loans made such lending practices possible. Initially the banks fought the CRA when it was first passed mandating review of lending practices for “red-lining” and other discrimination. Then the banks fought the reinterpretation of the CRA under Clinton to base lawsuits on loan rejection rates rather than default rates which is the proper measure of unbiased risk assessment. Jim Leech said at the time that as soon as the market goes south, these borrowers would walk and there would be a disaster with Uncle Sam picking up the tab due to Fanny and Freddy.

Some banks gave into the temptation of a gauranteed buyer for bad loans and others that did not were sued and forced to make bad loans by the government and the courts. To place all the blame on the banks who opposed all the bad legislation and regulation is very unfair. We have video of Andrew Cuomo who as HUD Secretary won the law suit that said the government could force these loans. He said that he knew the banks would lose money on these loans but that he thought it was a good thing anyway. Bankrupting shareholders to favor Dem supporting groups is still Dem policy. Look at the auto industry restructoring that preserved the policies that made them uncompetive in order to help the auto workers.

I wonder how old you are Bayam. I remember fighting the CRA back in the 70′s when just this result was predicted. I remember opposing the change in redlining criteria in the 90′s when just this result was predicted. Do you remember anything other than the latest talking points memo from the DNC?

KW64 on May 28, 2011 at 9:46 PM

Any advice for one looking to enter the market soon?

quiz1 on May 29, 2011 at 1:09 AM

Any advice for one looking to enter the market soon?

quiz1 on May 29, 2011 at 1:09 AM

Besides “not a good idea”?

Uncle Sams Nephew on May 29, 2011 at 12:45 PM

I wonder how old you are Bayam. I remember fighting the CRA back in the 70′s when just this result was predicted. I remember opposing the change in redlining criteria in the 90′s when just this result was predicted. Do you remember anything other than the latest talking points memo from the DNC?

I don’t know anything about DNC talking points but unlike you I actually read Too Big To Fail and know that not even Wall Street bankers subscribe to your politically motivated opinions. Alan Greenspan would completely disagree with you and my guess is that he’s not only older, but has more expertise on this subject.

bayam on May 29, 2011 at 4:05 PM