[00:00:11] Hey there. So I was reading an article and I thought the headline was great, so I figured we should go over it. Let’s get into it here. It’s on zero hedge, but it’s from Bloomberg and it says, pending home sales puked in August to the lowest record. Now, that doesn’t sound good, so I figured let’s dive into it and see what it’s about. It says, with existing home sales at their lowest since 2010 and new home sales finally hitting the wall, pending home sales were expected to decline month over month in August after an uptick in July amid soaring mortgage rates and plunging affordability. And they did bigly. So let’s just start off with the first line there. So existing home sales have been going downhill. New home sales last month were not looking great, even though for a long time the new home sales were doing pretty well because you were able to get rate concessions from the builders.

[00:01:12] And so that was where that was going.

[00:01:17] And so, yeah, pending home sales are expected to decline. That was not a surprise, but I think it’s hilarious. It’s pending home sales plunged 7.1% month over month in August, dramatically worse than the -1% expected, dragging sales down 18.8% year over year. Now, look, I mean, I’m a big fan of what goes up must come down, right? So we could not have had a housing market continue on the torrid pace that it was on for the last couple of years. I don’t care. Even if you never touched interest rates, it was unsustainable. Okay, so now we’re going to see reversion to the mean that’s the biggest month over month decline since September of 2022 and drops the overall index to exactly equal its COVID lockdown lows, the worst on record. So for me, I kind of just throw out the COVID lockdown lows because that was kind of manufactured.

[00:02:11] Yes, for like a month we couldn’t do real estate transactions, but once everything opened up enough that we could show houses and list houses, everything came right back. And you can see that in the sharp move up on the graph. Says, the pending home sales report is a leading indicator of existing home sales given houses typically go under contract a month or two before they’re sold. So that’s right. So typically when I’m writing a contract to purchase here in St. Louis, I like to put in 30 days. If it’s FHA, I might go 45 days, but for the most part, 30 days on a close would be totally reasonable.

[00:02:49] Now, the thing I worry about with the pending home sales is are these houses that have gone under contract the first weekend and then have gone out of contract due to a mortgage rate shock. As an example, in real life, what happens is buyers are working with mortgage professionals and they may have gotten a pre approval for a 6.5% on a 30 year fixed mortgage they may have been approved for that. The rates could have gone up with no one really paying attention to seven and a half where we might be right now, or even higher. So that when they actually go under contract on a property, they aren’t aware that the rates had changed so much. And when they go to lock in their rate, they find out very quickly that they’re not able to get the mortgage. And so they normally back out due to the finance clause.

[00:03:44] This could also be a seasonal type of thing where we just kind of passed our big months for sales. And traditionally in real estate for the year, typically around September, things start to fall off. It’s just the last gasp of August that’s out there. So up until now, maybe March, we won’t have tremendous sales just year over year. It’s just not the way it normally is. The last two years being anomalies and then, so there’s a quote here, it says some would be home buyers are taking a pause in readjusting their expectations, said Lawrence Yoon, the National Association of Realtor’s chief economist. And it’s clear that increased housing inventory and better interest rates are essential to revive the housing market. Now look, this is fascinating because all real estate is local. And what I mean by that is what we’re seeing in St. Louis isn’t necessarily the same thing as people are seeing in other parts of the country.

[00:04:46] The west and the Southwest are not doing great. They’re seeing a lot of price adjustments and things like that. I’m still seeing houses move off the market pretty quick, as long as it’s a nice home. So, for example, on Friday night I showed a house in University City. It was under contract by Saturday morning. I thought it was a very well represented home. I thought it was priced right, and I can understand why that one went, but I had looked at four other houses that were in the $600,000 range with some other buyers and those houses have sat on the market for a couple of months. Now.

[00:05:23] To me, they sat on the market because the value just wasn’t there. But those are all houses that would have easily gone under contract in a rate environment of 3% easily.

[00:05:35] So what I would say is we should expect numbers to continue to decline our pending home sales, total units sold, all these things should be going down. We’re not going to see the market we saw for sellers the last two years. I mean, it’s just not likely. So maybe you have a different opinion, though. Maybe you should put it in the comment section and tell me why I’m wrong. I’d be interested to know.

[00:06:04] With that, I think I’m headed out.

[00:06:07] Thank you for watching. Thank you for listening and I’ll catch you on the next one.