Most market reports are tracking declining sales as the hottest real estate year in nearly decade cools down with the onset of the fall and winter months. But none sank as quickly or as far as NAR’s October Pending Home Sales report.
In October Pending Homes fell to its lowest level since December 2012 when it was 101.3. The survey of contracts slipped 0.6 percent to 102.1 in October from an upwardly revised 102.7 in September, and is 1.6 percent below October 2012 when it was 103.8.
However a significant percentage of the fall off may be the result of the government shutdown, which lasted half the month of October, from October 1 through 16, rather than the housing economy. During that period the IRS did not respond to inquiries to verify the income of buyers applying for mortgage financing.
Some 17 percent of 3,503 Realtors who participated in an NAR survey reported delays in October from government sources, mostly from the IRS for income verification for mortgage approval. Lenders increasingly require income verification before approving mortgage applications, especially from applicants who are self-employed or who report significant income from sources other than employment. Ellie Mae reported that the time to close applications for purchase mortgages rose significantly in October, from 43 to 46 days.
The shuttered IRS may have done more harm to the housing recovery than just slowing some sales and killing others when buyers couldn’t line up their financing in time. Most media covering the pending sales report, which is based on a large national sample–typically representing about 20 percent of transactions for existing-home sales–but not nearly as large as NAR’s monthly existing home sales series, failed to mention IRS shutdown in their coverage of the report a week ago, in the beginning of Thanksgiving Week, typically a slow news time when reports like Pending Sales have less competition.
Bloomberg, for example, reported that pending sales “unexpectedly fell” when the October report was more negative than a panel of economists working for the news service predicted.
However, mortgage guru sees good news in the NAR numbers despite the problems with the IRD.
“Falling home sales don’t necessarily correlate with lower home prices, however. Home supply remains scarce nationwide, with the complete U.S. inventory expected to sell-out in just 5.0 months at the current pace of sales. Supply of less than 6.0 months is believed to connote a “Seller’s Market”.
“Scarcity may be among the reasons why home values are rising, in general. As compared to last year, home values are up more than eight percent. The median home sale price has climbed 13 percent. The good news for today’s home buyers is that there are a bevy of low- and no-downpayment mortgage programs to complement the existing 20% down programs via Fannie Mae and Freddie Mac, “he wrote.