I was pondering the combination of this report on existing home sales in January...
Sales of existing homes rose in January, reaching the highest level in seven months, according to the National Association of Realtors.
... and this report on pending home sales in January...
Pending home sales declined in January from a strong upturn in December due to unusual weather patterns, according to the National Association of Realtors.
... when the question I was about to ask was answered at Action Economics (subscription required):
The National Association of Realtors (NAR) debuted the Pending Home Sales Index (PHSI) on March 7, 2005. The index is based on when real estate contracts are signed, as opposed to the existing home sales data which captures when the deal closes. Given that the typical closing period is 1-2 months, this new index has proven to be a leading indicator for existing sales.
That timing certainly passes the eyeball test:
If you had to guess on the basis of that picture, I guess the conjecture would be that existing sales will be flat to slightly up over the next couple of months. That, in fact, seems to be the interpretation at the National Association of Realtors. From MarketWatch:
David Lereah, chief economist for the realtors' group, said he detected "an underlying pattern of stabilization in the housing market." He noted that the pending home sale index has recovered from a low in October. Lereah said unusual weather this winter might distort the picture of the housing market for several months, "but a modest recovery is likely."
It appears that Alan Greenspan still agrees:
Revisiting the issue, Greenspan said the U.S. economy was in the midst of an inventory correction, and said gluts in both the housing and manufacturing sectors needed to be unwound.
If home sales and housing starts continue at their current pace, he told the conference, "it will be a long haul to get rid of this stuff." But for home sales, Greenspan believed a bottom had already been reached.
Mr. Greenspan and Mr. Lereah may be right -- I tend to think the bottom is at least close -- but, to be fair to the bears, the argument all along has been that the real problems will begin if problems in the housing sector spill into the financial sector more broadly. That makes this, from The Wall Street Journal (page C3 in the print edition), an unwelcome bit of news:
Turmoil in the market for bonds backed by home mortgages is starting to infect its commercial cousins: mortgage bonds backed by office towers, hotels and shopping malls.
The cost of insuring commercial-mortgage-backed securities as measured by an index known as the CMBX has jumped since late last month. The spread on the index that tracks riskier, BBB-minus-rated bonds has doubled to 1.64 percentage points this week from 0.84 percentage point on Feb 23, according to Markit Group, which administers the index...
Although most analysts believe the commercial real-estate market remains solid, the widening spreads on bonds could send a psychological jolt to investors, cool down the white-hot buyout market in commercial real estate and perhaps even restrain commercial real-estate prices.
Morgan Stanley REIT analyst Matthew Ostrower says he doesn't think the CMBX is signaling a real-estate bear market, but "looking at those index spreads, somebody's panicking. Somebody's concerned."
Let's hope "somebody" isn't right.