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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.
The pending home sales index report for November 2014 showed that pending home sales in October decreased 1.1% on a month-over-month basis (as compared to September 2014). The small decrease in the index reverses the small increase in the index reported in the October report. The existing home sales market does not seem to be able to gain momentum despite lower interest rates and stabilizing housing prices. The pending homes sales report for November came in below estimates as analysts were hoping to see continued improvement following October’s positive report. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The trajectory of the housing market remains relatively stable as we close 2014 and look toward 2015. The decline in pending home sales for October suggests that buyers continue to be somewhat reluctant to enter the real estate market and this appears to be especially true for first-time home buyers. Attractive interest rates, however, should eventually pull prospective home buyers into the market. First-time home buyers should review our First-Time Home Buyer Cheat Sheet to prepare for the mortgage process and use our Mortgage Qualification Calculator to determine what size mortgage they can afford before they shop for a home.
The FREEandCLEAR Mortgage Expert