Photo: http://www.newhomessection.com/blog/pending-home-sales-drop-11-6-percent-in-april/2011/06/02/
Some recovery has been seen in the realm of pending home sales since September 2010 — a 6.4% increase year-over-year, in fact. However, the September 2011 rate represents a 4.6% drop from where the rate sat in August 2011.
What’s more, declines are present in every region of the country: The West suffered a mild decline of 2.1%, the Northeast witnessed a 4.7% decrease, the South underwent a 5.5% drop, and the Midwest got hit the hardest with a precipitous 6.2% downturn.
Now, you may be wondering, as I did, why this would occur. After all, a nationwide loss in pending home sales is fairly significant, especially in light of the fact that “the private sector added nearly 2 million net new jobs in the past 12 months”.
The reasons why really boil down to these four primary ones: Restrictive lending criteria, poor consumer confidence, jobs market pessimism, and a remodeling decrease.
Restrictive Lending Criteria
NAR chief economist Lawrence Yun, who’s calling for higher loan limits, explained it this way:
“America’s monetary policy is contradictory and confusing, where some consumers with the best financial capacity and top-notch credit scores pay higher mortgage interest rates … The Federal Reserve evidently has been attempting to lower mortgage rates, yet more consumers are faced with taking out jumbo loans that carry higher interest rates.”
Poor Consumer Confidence
When it comes to consumer views on business conditions, the labor market, and income prospects, consumer confidence sits at the rate it held during the 2008-2009 recession (which really never ended, but I digress). Additionally, as noted by the Director of The Conference Board Consumer Research Center, Lynn Franco, “The Present Situation Index posted its sixth consecutive monthly decline, as pessimism about the current economic environment continues to grow.”
Jobs Market Pessimism
I can’t really put it better than this:
According to the [Conference Board Consumer Confidence] Index, “Those anticipating more jobs in the months ahead edged down to 11.3 percent from 11.9 percent, while those expecting fewer jobs decreased to 27.4 percent from 28.6 percent. The proportion of consumers anticipating an increase in their incomes declined to 10.3 percent from 13.5 percent.”
Remodeling Decrease
Major additions, minor additions, and maintenance and repair all saw a drop-off in the third quarter of 2011, according to the newest Remodeling Market Index (RMI) put out by the National Association of Home Builders (NAHB). Even though the Midwest and South showed gains in the field of remodeling and a large number of people are interested in doing some remodeling, many are viewing the current economic conditions with trepidation and are sitting on their cash for the moment instead of following through on their plans.
In short, until these four areas experience some kind of real, significant improvement, expect to see volatility in the rate of pending home sales.
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Stephanie Huskey is the resident real estate blogger for Movoto and can’t really blame consumers for being stingy with their money. (Who isn’t these days? I know I am!) Interested in getting her advice on your blog? She’s currently seeking guest blogging opportunities so she can share her knowledge with new communities! You can find her over here at Elance.com.
