Thursday, 6 September 2007

Pending home Sales plunge

Contract signings on existing homes dropped 12.2% in July - the largest drop since the pending homes sales index started in 2001, the National Association of Realtors (NAR) reported yesterday.

Pending sales were 16.1% below the level of one year ago. Remember that the July data does not take into account August's credit market dislocation.

Ian Shepherdson, chief U.S. economist with high Frequency Economics had this to say:

"This is disastrous," July's plunge indicates that June's rebound was a "fluke,"
"Note that this collapse in pending home sales predates the turmoil in the markets and the subsequent jump in jumbo mortgage rates, even for prime borrowers,"
The usually effervescent Lawrence Yun, NAR's senior economist sounded surprisingly somber.
"The future is uncertain with abnormal factors clouding the 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,"
Forget the rest the first line in bold is a surprising admission. Economists like to pretend and actually convince themselves that they deal in certainties however the fact is that economics is little more than a speculative area of investigation, riddled with ambiguity and uncertainty. Yun's statement is surprising for it's candidness. No doubt he will be chastised by his fellow professionals for such an outburst.

Shepherdson said it above but it can't be emphasized enough that these figures are pre-turmoil. Since these numbers lending standards have tightened considerably. August numbers are shaping up as a little on the sick side and September's even more so.