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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.
After reaching a nine-year high in May, the pending homes sales index reversed course in June. Pending home sales fell short of analyst expectations with the June pending home sales index dropping 1.8% on a month-over-month basis (as compared to May 2015). Analysts were expecting an increase of approximately 1.5%. The decline in the index was surprising given the recent string of positive housing market reports including a very strong existing home sales report for June. The pending home sales index was dragged down by lackluster results in the South and Midwest while the West and Northeast regions edged higher. Although the June figure disappointed, year-to-date the pending home sales index is up 8.2% showing the overall strength of the existing home sales market. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The pending homes sales index had reached a post housing market recovery high in May so it is not a total surprise to see the index pull back in June, especially in light of the modest increase in interest rates over the past several months. If will be interesting to see if the soft June pending sales figure results in a dip in final existing home sales later this Summer. Although the broader housing and mortgage markets appear to be gaining sustained momentum prospective home buyers can potentially take advantage of the dip in pending home sales to make their move. As you navigate the home buying process use our Mortgage Qualification Calculator to determine what size mortgage you can afford and keep track of mortgage rates and fees for lenders in your area with our INTEREST RATES feature.
The FREEandCLEAR Mortgage Expert