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 third consecutive month with the pending home sales index for March increasing 1.1% on a month-over-month basis (as compared to February 2015) and 11.1% on a year-over-year basis (as compared to March 2014). The increase in the index matched the midpoint of analyst expectations and follows a 3.6% increase in the index reported for February. The increase in the pending home sales index was driven by gains in the nation’s two largest housing markets — the South (up 4.0% on a monthly basis and 12.4% on an annual basis) and the West (up 1.7% on a monthly basis and 15.6% on an annual basis). Although the rate of increase for the index slowed in March as compared to February, pending home sales are on a winning streak having been in positive territory every month this year. The favorable pending home sales report bodes well for future existing home sales and mortgage applications as home buyers under contract finalize their financing and purchases over the next one-to-two months. (Source: Bloomberg)
What it Means for Mortgage Borrowers
A string of strong pending home sales reports combined with the recent robust existing home sales report for April show that home buyers are gravitating toward the existing home market. Existing home buyers are taking advantage of low interest rates, available mortgage financing and lower price points as compared to the new home sales market. The existing home sales market is significantly larger than the new home sales market so the positive reports on pending and existing home sales reflect the growing strength of the broader real estate and mortgage markets. Prospective home buyers are finding attractive properties to buy and qualifying for mortgage financing to complete their home purchases. If you have been contemplating buying a home, now may be a good time to start the process. Use the Mortgage Qualification Calculator on FREEandCLEAR to determine what size mortgage you can afford and use our INTEREST RATES feature to review mortgage rates and fees for lenders in your area.
The FREEandCLEAR Mortgage Expert