Bill's Blog

Pending Home Sales Indicate Near-Term Softness - NAR Report

2007-05-04T12:26:36Z

The Real Estate Market in the Maryland Suburbs of Washington DC have continued to challenging. The number of sales have been lower and the inventory is growing at near historic highs. This goes along with this timely article from the National Association of Realtors:

WASHINGTON, May 01, 2007 - Pending home sales, a forward-looking indicator, show sales closed in April are likely to remain soft, with some drag possible in May as well, according to the National Association of Realtors®.

The Pending Home Sales Index*, based on contracts signed in March, registered 104.3 ? down 10.5 percent from March 2006 when it was 116.5, and is 4.9 percent below an upwardly revised February index of 109.7. The index is the lowest since a reading of 103.5 in March 2003, coincidentally, the middle of the housing boom.

David Lereah, NAR?s chief economist, expected the decline. ?Although the weather improved in March, we?re starting to see the effects of a decline in subprime lending and tighter lending standards,? he said. ?Home sales will be relatively sluggish in the second quarter, but a modest uptrend should resume during the second half of this year.

?We?re fortunate to have a positive economic backdrop now with job growth and low mortgage interest rates to provide opportunities for buyers who?ve been on the sidelines or were unable to get into the market during the boom, especially with inventories favoring buyers.?

The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined as well as the first of five consecutive record years for existing-home sales. There is a closer relationship between annual changes in the index and actual market performance than with month-to-month comparisons. As the relatively new index matures and seasonal adjustment factors are refined, the month-to-month comparisons will become more meaningful over time.

The PHSI in the West rose 1.6 percent in March to 104.0 but was 8.6 percent below a year ago. The index in the Northeast fell 4.9 percent from February to 94.2 and was 14.0 percent below March 2006. The index in the Midwest dropped 6.9 percent in March to 95.9 and was 9.5 percent lower than a year earlier. In the South, the index fell 7.1 percent from February to 115.2 and was 10.6 percent below March 2006.

The National Association of Realtors®, ?The Voice for Real Estate,? is America?s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

Graph Showing the Decline in Monthly Real Estate Transactions since 2005

2007-05-04T08:55:34Z

As a residential real estate agent for Llewellyn Realtors, I recently had a chance to study the number of monthly residential housing transactions that occurred in Montgomery County from the year 2000 to the present. I created a set of tables and two graphs to illustrate results.

The Pattern

The upper graph, organizing monthly trends in transactions, shows that January consistently produces the least number of settlements than any other month of the year. Between January and June, you can see that the number of sales transactions continue to climb, culminating in peak of sales transactions in June. According to the data, the months of September - December average about the same number of transactions with respect to each other.

The Change

When you flip the data and organize the data by years, as in the lower graph, you will note that 2004 and 2005 were top years for sales within Montgomery County. Compare the peak sales of June 2004 and June 2005 (2075 and 2047), they are relatively the same. Our settlements in the residential housing market continued to grow between 2000 and 2005. However, the pattern of growth in summer and fall of 2005 showed a marked decline. Remember the pattern for the months September - December generally stayed the same in previous years, so this deviation from the pattern indicated a shift in the market conditions.

The Prediction

As local real estate agent who participated in transactions throughout the outlined years, I have an opinion for this shift. I believe that Hurricane Katrina played a big role in the economy of housing and notes that it hit on August 23, 2005. This was about the time that the market began its decline. The country experienced immediate and dramatic increases in gasoline costs and had less discretionary income. As a result, consumer confidence in the economy began to decline significantly. With 10 - 20 % of the real estate speculation leaving the market it enabled the market to return to a more normal growth which is parallel with homeowner's incomes.

The old rate of growth in the housing market was out of whack with people's ability to afford housing. When this adjustment period is over, I predict that housing prices will begin to trend towards a modest gain.

Montgomery County Now Posting Camera Speed Tickets

2007-05-04T08:45:27Z

In March, Rockville began its "Safe Speed" program. As a pilot program, speed cameras have been placed in neighborhoods with posted speed limits of 35 mph or less and school zones. Similar automated speed enforcement programs also are being initiated in Chevy Chase Village and the cities of Rockville and Gaithersburg. To view a sample citation or a speed enforcement video go to the Safe Speed web site at: http://www.montgomerycountymd.gov/poltmpl.asp?url=/content/pol/ask/speed.asp

Excessive speeding is a significant public safety problem both in Montgomery County and around the state. Speeding-related crashes accounted for 35 percent of all 2005 Maryland traffic fatalities. The public costs of these crashes total over $732 million. In 2005 alone, 214 people were killed in speeding-related crashes in Maryland, with at least 16 of those deaths occurring in Montgomery County.
During the pilot program that began in March, vehicles traveling more than 10 mph above the posted speed limit received warnings by mail. Starting May 2, citations, charging a $40 fine to violators, will be mailed. No license points will be assigned and insurance companies will not be notified.