The short answer is when the closing takes place between the seller and buyer. The long answer is, well, a bit longer as you might assume. According to a recent report from the National Association of Realtors (NAR) pending home sales increased by 7.3 percent to 100.1, which is the highest reading since early 2010 when it reached 111.5 in April of that year. That date is significant because it was the last full month of sales contracts to be signed before the federal tax credit for home purchases expired. Many housing experts view the April 2010 reading of 111.5 as somewhat artificial as it was due primarily to the deadline to get favorable tax treatment for homebuyers. The deadline was actually extended previously and sales contracts for homes spiked higher as a result until the final expiration in April 2010. Pending sales contracts are normally not finalized or closed until one to two months after signing and then the actual sale is recorded as an existing home sale by NAR.
Can We Believe the Numbers
The NAR has come under fire recently for over-estimating existing home sales for 2007 to 2010, making the sales of existing homes appear higher by as much as 15 percent. The miscalculation was caught by data analysis firm CoreLogic in early 2011 and corrected by NAR in December 2011. The admission that the data for existing home sales was wrong by such a large percentage has stunned some economists and housing industry experts who rely upon the NAR for accurate information. To its credit, NAR explained that there was a “divergence” in data provided to its model starting in 2007 and it was not fully aware of the magnitude of the error until early 2011 when CoreLogic reviewed the data in question and found mistakes that impacted the reported results. The misstep now brings into question the validity of pending home sales and how accurate they ultimately are in predicting future home sales that may not close as expected. BusinessWeek provided details online regarding the current metrics reported.
It’s the ‘New’ Math
The NAR expressed concern in its latest press release that “some of the gains (in pending sales contracts) may result partially from delayed transactions”. That means that previously counted pending sales contracts did not close as expected and now there are new pending sales contract that in essence represents the same buyers trying to purchase another home. The NAR continues “contract failures have been running unusually high” – which is a the result of buyers not getting their mortgage approved due to credit score, income or down payment. Another factor as of late has been appraisals not supporting sellers asking prices in many markets due to foreclosures and other distressed sales that lower the ‘comps’ or comparative homes sales data that appraisers and lenders utilize to get a sense of what the value of the home really is. The confusion over the data reported is not unique to the real estate industry, economists have found some of the macroeconomic indicators to be somewhat contradictory at times and difficult to reconcile with market realities. In a USA Today feature, 33 percent of realtors said they had a pending sales contract that did not close in the past month, that figure is up from 18 percent just one month ago.
The trend ultimately appears to be improving for existing home sales, despite the ‘starts and stops’ of the housing market and the reluctance of potential homebuyers to jump into the market with both feet and their checkbooks in hand. Consumer confidence is improving and mortgage rates are near historic lows, but the primary concern of those still on the sidelines is how low do home prices still have to go until they really hit the bottom?