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Pending Home Sales Index Tumbles

As mortgage market tightens, index of pending sales 16% below a year ago

September 7, 2007

The National Association of Realtors says its Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in July, fell 12.2 percent to a reading of 89.9 in July from the June index of 102.4, and was 16.1 percent lower than July 2006 when it stood at 107.1.

But despite the spreading credit crunch, long-term mortgage rates are showing little change.

The latest Freddie Mac Primary Mortgage Market Survey (PMMS) shows the 30-year fixed-rate mortgage (FRM) averaged 6.46 percent with an average 0.5 point for the week ending September 6, 2007. Last year at this time, the 30-year FRM averaged 6.47 percent.

Lawrence Yun, NAR senior economist, said abnormal factors are clouding the pending home sales horizon.

“It’s difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren’t closing because mortgage commitments have been falling through at the last moment,” he said.

“These temporary problems are primarily with jumbo loans, and there are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing or FHA-insured loans. Some consumer concerns remain, but since mid-August the market has been stabilizing somewhat.

“If lenders focus on the essentials of creditworthiness and adjusted valuations based on comparable sales, and ignore speculation on what might happen in the future,” Yun said, “broader stabilization will come sooner rather than later.”

The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Annual changes in the index are more closely related to actual market performance than are month-to-month comparisons. As the relatively new index matures and seasonal adjustment factors are refined, the month-to-month comparisons will become more meaningful.

West, Midwest Hardest Hit

The PHSI in the South declined 6.6 percent in July to 104.0 and was 15.2 percent below a year ago. In the Northeast, the index fell 12.2 percent from June to 84.3 and is 10.0 percent lower than July 2006.

The index in the Midwest dropped 13.1 percent in July to 80.4 and was 15.8 percent below a year ago. In the West, the index fell 20.8 percent in July to 82.3 and was 21.8 percent below July 2006.

Long-Term Mortgage Rates

The latest Freddie Mac reports show little significant change in long-term mortgage rates.

“Over the past week, long-term mortgage rates were largely unchanged as the most recent economic news showed smaller increases than had been expected,” said Frank Nothaft, Freddie Mac vice president and chief economist.

“For instance, core personal consumption expenditure price index rose at an annualized rate of only 1.3 percent in the second quarter and July’s consumer spending data showed a 1.9 percent gain in the core price index for the twelve months ending in July.

The 15-year FRM this week averaged 6.15 percent with an average 0.5 point, up from last week when it averaged 6.12 percent. A year ago, the 15-year FRM averaged 6.16 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.32 percent this week, with an average 0.6 point, down from last week when it averaged 6.35 percent. A year ago, the 5-year ARM averaged 6.14 percent.

One-year Treasury-indexed ARMs averaged 5.74 percent this week with an average 0.6 point, down from last week when it averaged 5.84 percent. At this time last year, the 1-year ARM averaged 5.63 percent.

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