A Pending Sale Doth Not a Sold Property Make!
Over the years, I have been accused of being a prickly cynic (I prefer irreverent skeptic…but let’s not argue over semantics). This is especially true when I feel as if I’m being “sold-to” by experts with an agenda. This leads me to today’s topic which is: Why is there so much attention being paid to “pending home sales” instead of actual “closed sales.” Newsflash: THEY ARE NOT THE SAME! The first is merely a predictor and, as you will see not a reliable predictor. The second, in my opinion, is the only number that counts.
Recently, the National Association of Realtors, the local real estate “gurus” and the Main Stream Media have been bombarding us with numerous reports and indices showing a rise in pending sales. Here are some examples:
- Daily Real Estate News reports on June 2, 2009: Pending Home Sales Increase. The Pending Home Sales Index, a forward-looking indicator based on contracts signed in April, rose 6.7 percent to 90.3 from a reading of 84.6 in March, and is 3.2 percent above April 2008 when it was 87.5.
- From the Northwest Multiple Listing Service press release, Inventory shrinking, sales rising, prices stabilizing in some Northwest MLS areas: “Waiting longer to buy a home is not likely to pay off,” according to Northwest Multiple Listing Service director Kathy Estey after reviewing reports summarizing May activity. Estey pointed to shrinking inventory (about 20 percent fewer listings than a year ago), double-digit increases in the number of pending sales (up 17.7 percent from a year ago), solid open house activity, and signs of stabilizing prices (eight of the 19 counties in the report show price gains since January) as indicators of an improving market.
Certainly, a rise in pending sales is a good thing. Many in the industry see this as the positive effects of low interest rates, the $8000 tax credit for first time home buyers and a drop in home prices. However, before everyone pops the champagne and celebrates, let’s get real. According to statistics compiled by “The Tim” of www.seattlebubble.com, 1/3 of pending sales fail to close 30 days after a contract is accepted. Also, according to one of my inside sources in a very large, local Title Company, almost 50% of the sales transactions they have in escrow have been failing.
A recent article in the Seattle PI entitled Pending home sales up again, but will they close? really gets to the heart of my skepticism. Many pending sales are taking too long to close, both distressed sales and regular “arms length” sales. Also, the way in which the listing service reports “pending sales” changed last July. This change has fundamentally inflated pending figures.
Above, I indicated that “closed sales” are the true indicator of how a market is doing: There were 5158 closed sales in May of 2008. There were 4154 in May of 2009. This represents a 20% decrease from a year ago and suggests that the market is still fragile. Remember this decrease in sales comes at a time when prices are still dropping. Also, to become optimistic about the rise in pending sales is simply wishful thinking about an improving market. Indeed, economists are warning that we are going to see another wave of foreclosures which will further dilute home prices, unemployment will continue to rise, and interests rates are expected to continue an upward trajectory.
The bottom line is that we are in the midst of a difficult real estate market. The industry is trying its best to spin statistics in a positive way because that’s what they always do in spite of the facts. As a Realtor® if I’m showing clients a home and I see obvious flaws in a property, I’m obligated to point them out. Well, I believe it’s also my obligation to avoid the spin and point out the flaws in the industry hype: if you’re buying or selling real estate now, consider carefully the agent you’re working with and be skeptical of the “conventional wisdom” because the rules have changed and the game may be tougher than you think.
Comments
Sorry, comments are closed for this article.
