Takeaway: MoM = -2.4%, YoY = -0.2%, 2016 Ave = +0.92%, Expect More Underwhelming'ness for the balance of 2H.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

PHS | Wet Blanket - Compendium 092916

Pending Home Sales in August declined -2.4% sequentially while falling to -0.2% YoY, marking the 3rd month of ≤ 0% growth in the last 4 months.  For 2016 YTD, growth in signed contract activity has averaged just 0.92% with negative-to-sub 1% growth in 5 of 8 months.  The retreat in PHS in August suggests negligible upside to September EHS when the data are officially reported next month (10/20).

While the NAR’s contention that “the housing recovery could stall” - after it’s already decelerated from low-teens to consecutive months of negative growth - is lamentable, we’d agree with their conclusion that "Given the current conditions, there's not much room for sales to march again towards June's peak cyclical sales pace."

Our expectation since the start of the year has been for sales growth in the existing market to converge to zero by mid-year and subsequently run in the -1%-to-+3% range for the balance of the year.  Inclusive of the August PHS and EHS data and with growth slowing prevailing at the macro level and ongoing inventory constraints prevailing at the industry level, that same underwhelming expectation continues to characterize out nearer-term outlook. 

In other words, residential construction should continue to fade as a support to GDP in 2H and the neutral-to-bullish case for transaction volumes in the 90% of the market that is existing sales is low single digits.

PHS | Wet Blanket - PHS YoY SA   NSA

PHS | Wet Blanket - PHS Units   YoY TTM

PHS | Wet Blanket - EHS vs PHS

PHS | Wet Blanket - PHS Regional YoY

PHS | Wet Blanket - PHS LT

About Pending Home Sales:

The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.

Frequency:

The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.

Joshua Steiner, CFA

Christian B. Drake