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Chances are, if you follow the economy at all, there are two things on your mind, oil and housing. Despite a couple days in a row of oil selling off, it seems like high oil prices are here to stay for a while. And housing continues to remain weak, with signs pointing to more weakness in the months to come.
I am sure you are as sick of hearing about homes sales as I am, but unfortunately it is something we have to look think about, and today we get more bad news, as the National Association of Realtors announced that May was yet another tough month for pending home sales. In fact, with a reported 4.7% drop in pending home sales, May was the third lowest month on record, a sign that tough times are still here, and probably going to be sticking around for a while longer.
First, let's get a better idea of what exactly we are talking about here. What are pending home sales? Simply put, a home sale is pending when there has been an offer made and accepted, but the deal has not yet closed. The lag between the acceptance and the closing is typically one to two months. The index to track this was started back in 2001, so to get to a 100 rating, you would have to have the average level of sales activity that we were seeing back in 2001.
Earlier this year, we saw the lowest monthly record since the index stated, at 83 in March. Compare this with the situation at the start of last summer, when the index was running at 98.5 during May of 2007. Going into today's report, Wall Street was hoping to see pending sales this May at 87, but were disappointed to see an actual reading of 84.7, a 4.7% decline from an upwardly revised April figure.
On a brighter note, we did see that existing home sales were a bit higher in May, which points to the fact that consumers are starting to become attracted to the highly discounted real estate that is becoming more and more available out there. This is a good sign, but most economists still agree that prices are going to have to continue to move lower before any meaningful rush is made on real estate, since people are just too scared to starting jumping into the market.
So, slightly mixed messages, but there seems to be plenty of reasons to assume that the housing situation will remain fragile through at least the end of 2008. Will we see the market start to bottom out in the next few months? Quite possibly, but we are definitely not at the end of the tunnel yet, and another few tough months are probably on the horizon.
Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor's Observer.
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