Smith Faculty Opinion Article

March 6, 2008

By Dr. Peter Morici, Professor of International Business
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 Peter Morici

Pending Home Sales Index Steady,
Existing Home Sales Remain at Depressed Levels

Today, the National Association of Realtors reported its index of pending home sales for January was steady at 85.9, unchanged from December and down from the January 2007 figure of 106.8. The base period for the index is 2001—the average index for that year was 100.

This statistic tracks new sales contracts written on existing homes and provides an indication of sales completed about one or two months hence. Together, the December and January pending sales indexes provide a precursor of February existing home sales, which will be reported by the NAR on March 24.

My proprietary econometric model indicates that the annualized rate of existing home sales in February will be 4.9 million, about the same as in January. This is well below the average sales levels prior to the subprime meltdown. In 2006, for example, sales averaged 6.5 million, which may be considered a more normal year.

A shortage of financing for Alt-A and subprime customers is the primary culprit, along with growing buyer pessimism about the outlook for home prices over the next several years. Buyers are scared of being burned, and many willing buyers can’t get reasonable financing.

The sorry state of the Wall Street banks and their inability to convert mortgages into marketable securities continues to weigh down the housing market and broader economy.

Peter Morici is a professor at the Robert H. Smith School of Business and former Chief Economist at the U.S. International Trade Commission.                                                          ►More Faculty Opinion Articles