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Pending Home Sales hit their most recent peak in October according to data reported in November, 2021 by the National Association of Realtors (NAR). In each of the subsequent 6 months, the NAR's Pending Home Sales Index declined until bottoming out in April at 99.2. Apart from the first 2 months of the pandemic, that was the lowest reading since 2014. Today's report (for the month of May) finally saw the index improve. While the gains barely registered, it was a much stronger showing than the median forecast which called for a 3.7% decline. Realtors remain cautious nonetheless. "Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition," said NAR Chief Economist Lawrence Yun. "Contract signings are down sizably from a year ago because of much higher mortgage rates." Yun blamed the general ongoing slump on the interest rate surge seen in 2022 so far, saying "choking off demand via higher mortgage rates is damaging to consumers and the economy. The better way to balance the market is through increased supply, which also helps the broader economy." Yun isn't wrong regarding a correlation between sharp rate spikes and pending sales. That said, experts were already questioning the sustainability of the housing market's trajectory--both in terms of prices and sales--well before the brunt of the recent rate spike. In other words, some sort of reckoning was inevitable. The meteoric nature of the rate spike simply made the timing obvious.
Last month's New Home Sales data from the Census Bureau was a real downer. It showed sharp declines in sales and a puzzlingly abrupt jump in inventory levels. One thing we used to point out about this data series was its immense margins of error. These could frequently result in major revisions that ended up painting completely different pictures compared to the initial release. For whatever reason, the size of those revisions remained stable enough in recent years that our coverage hasn't felt the need to point it out as regularly. Today doesn't necessarily bring that old school feeling back with a vengeance, but there was moderately big revision that brought last month's 591k reading up to 629k (for the month of April). The bigger news is the extent to which May's new home sales crushed forecasts. The median forecast saw sales coming in at 588k--a far cry from the actual reading of 696k. When taken in conjunction with last month's positive revision, it completely changes the tone of the long-term trend from one of "volatile reversal" to "gradually leveling off." Granted, big margins of error cut both ways and there's no guarantee today's 696k will remain intact by the time it's revised in a month. That said, it could go higher or lower. As always, keep in mind that the new home market is significantly smaller than the existing home market. That one still conveys more of a "volatile reversal," albeit to levels that are in line with pre-pandemic highs in 2016-2018.
Rates may be much higher in each of the past 3 months, but those with mortgages are making their payments with record-setting regularity. The overall delinquency rate fell 0.05% to 2.75% in May--the third consecutive record low. Serious delinquencies (90 days or more past due, but not in foreclosure) are still 45% higher than pre-pandemic levels, but fell sharply (7%) from last month. Foreclosure starts were down even more, falling 12% from April. Starts remain far below pre-pandemic levels, but active foreclosures increased modestly. One other statistic measured in the First Look data is "prepayment" activity. This refers to a loan being paid off for any reason (sale, refi, foreclosure, short sale, etc). With interest rates surging in 2022 and refi demand drying up to near record lows, it's no surprise to see a huge decline in prepayments, falling 11.1% in May and 59.1% year over year.