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The National Association of Realtors pending home sales index tracks the number of existing homes that went into contract to be sold. When a home seller and buyer agree to the price and terms of a home sale, they sign a contract that outlines the transaction details and the property is said to be “under contract.” The home sale process is typically completed four-to-six weeks after the property goes under contract so the pending homes sales index is a leading indicator, or predictor, for the real estate market. An increase in the index reflects an increase in existing home sales while a decrease in the index reflects a decrease in existing home sales. It is important to point out that the index tracks existing home sales as opposed to new home sales, or homes that are recently constructed that have not been lived in previously. When people purchase a home they typically get a mortgage so the index also forecasts future activity in the mortgage market. The pending home sales index is released on a monthly basis and provides figures for the prior month.
Pending home sales increased for the fourth consecutive month with the pending home sales index for April rising 3.5% on a month-over-month basis (as compared to March 2015). For the year, pending home sales are up 14.1% as compared to 2014. The increase in the index in April exceeded the high end of analyst expectations and builds upon a 1.2% increase in the index reported for March. The increase in the pending home sales index was driven by gains in the Midwest and Northeast as improved weather boosted activity in those regions. The West and South regions showed smaller gains coming off very strong showings for March. The steady growth in pending home sales shows that buyers are increasingly finding attractive homes to purchase and are qualifying for mortgages. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The strong pending home sales index report for May should translate into increased existing home sales over the next several months after a dip in April. Growing strength in the pending home sales index is a positive sign for the real estate and mortgage markets. Although interest rates have inched up over the past month they remain relatively low and attractive to prospective home buyers. Prospective home buyers can use the INTEREST RATES feature on FREEandCLEAR to monitor mortgage rates and fees for lenders in your area. Additionally, before you start the home search process, use our Mortgage Qualification Calculator to determine what size mortgage you can afford.
The FREEandCLEAR Mortgage Expert