On Friday I posted this graph of 2009’s pending and closed sales to demonstrate just how out of whack the two have become:
In the comments, a reader claimed that I was “reading this graph wrongly,” and that plotting the data in this manner “will always see a giant gap.”
Since there is typically a delay between when a sale goes pending and when it actually closes, this would make sense logically. Unfortunately, the data does not bear this theory out. In general, the gap tends to appear only in the spring, with pending and closed sales generally evening out in the summer and fall.
Here’s another way to visualize the difference between this year and previous years:
Six of the ten months so far this year have blown past the lowest average monthly difference in 2000-2008 (-635 in February).
If you’re interested, I have also plotted the pre-bubble years 2000-2003 individually:
No matter which way you slice it, this year is incredibly out of whack when it comes to the number of pending sales that actually turn into closed deals.
Humor me if you will …
Active – STI is now counted as Pending.
I used to track ACTIVE – STI to get an estimate of Pending, the ratio was approximately 1 Active – STI for every 3 Pending.
If you want to see the ratio of Pending Inspection to Pending (all others), you can now see this on CBBain or John L. Scott website.
Doesn’t this explain some of the discrepancy?
To compare apples to apples, you would have to take all Active – STI plus Pending under previous accounting to get all Pending under current accounting.
Is this year really “out of whack” or is this simply a result of the NWMLS changing the definition of what is a pending sale. Prior to June 2008, a home wasn’t pending until after the home inspection . Now it;s pending as soon as there is a signed agreement.
They’re counting pendings waaay earlier in the process so you’re going to have a lot more fall outs. Some homes will fail on the inspection, some owners get cold feet at this stage, and some buyers will find out they really aren’t approved for a loan.
The conspiracy or thing of interest is that the NWMLS changed the definition, didn’t tell anyone, then loudly promoted the increase in pending sales YOY. The fact that there are more pendings not making it to closing is much less of a story.
Also, a short sale is counted as pending as soon as the seller agrees and signs the paperwork, but something like 75% of the short sale deals don’t close, and there remains a ton of them out there.
I don’t think this has much of anything to do with the pending definition, because not that many fall out. It’s more due to short sales, IMHO.
I believe there are over 1000 pending short sales right now, and less than 150 that closed last month (King Cty SFR). It’s not possible for me to easily get any kind of handle on how many short sales there were in the past six months that flipped, but that’s probably a sizable number too. And, it’s also possible that many of those short sales went pending more than once, which would also inflate the number the way the NWMLS track them.
RE: Ira Sacharoff @ 3 – What percentage do the other sales close?
Is the number of pending short sales increasing?
There has always been some background number of short sales, foreclosures, and so on, but if the quantity of short sales suddenly increases, then that might affect the overall success rates of closures. As always, we must consider the rate of success of the other sales. If the two rates are equal, then the combined rate would be the same no matter the mix. And whenever we are analyzing ratio data, we have paradoxes to consider, such as Simpson’s Paradox.
RE: AMS @ 5 – Hard to get stat’s on the first question, but I’d guess less than 10%. Yes the number of short sales is increasing, but in addition they’re becoming more difficult because before you might have only had to deal with a second, and now you have to often deal with a first and a second.
RE: Kary L. Krismer @ 6 – Do you mean 1.00-less than 10% = more than 90%?
Sorry, I meant I would guess less than 10% DON’T close. Most of those would be pending inspection. It might be a bit higher, but it’s not 50% or anything close.
RE: Kary L. Krismer @ 4 –
“To compare apples to apples, you would have to take all Active – STI plus Pending under previous accounting to get all Pending under current accounting. ”
Do you agree or disagree?
I’m not certain how the NWMLS counts pendings. They may just count the property once when it goes pending or pending STI. I’m not sure it gets counted again when it goes from Pending STI to Pending. I sort of doubt they do because that would practically double the number of pendings each month, since most do go from Pending STI to Pending.
I never really looked at pendings in that way before anyway. Rather than look at the number of new pendings each month, I would look at the number of outstanding pendings at a given point in time. The short sale issue has made that deceiving too, so now I don’t look at pendings at all other than recording the median pending in my database, and I only do that now because I did it in the past. All the pending data is irrelevant right now.
RE Will Sell
That’s a for sure. But so did stocks right before the 1929 crash and then after the post 1929 crash suckers’ rally, stocks really sold well….only to crash again.
Watch commercial RE very carefully, when the banks are stuck with a bunch of empty buildings and IOUs, the debt manure will really hit the fan…..my prediction, in a year or two watch for another stock market crash due to bad loans in commercial RE.
No one’s talking about the commercial RE toxic loans now, the i.e., hotel owners, are like using their own stimulus savings account cash to keep a few workers employed and the heat on….but when that dries up soon…..granny bar the door.
RE: softwarengineer @ 11 – Haven’t we been talking about problems with commercial loans for about a year now?
I think the one and only saving grace there might be that the loans are so big the banks might actually think about it and negotiate extensions, etc. That’s quite a long shot though because it assumes banks will make rational decisions.
Wow my opinion got a blog entry for it! Thanks Tim!
Yes even if you move the closing graph back two months, it’s still out of whack that about 500 pending sales don’t close every month. (anyone know how many of them are short sales?) My point was it’s just not as dramatic as 1150 discrepancy in April currently shown.