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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.
In somewhat of a setback for the real estate and mortgage markets, the pending home sales index report for January 2015 showed that pending home sales in December decreased 3.7% on a month-over-month basis (as compared to November 2014). The decrease in the index compares to a 0.6% increase in the index reported for November and fell short of analyst expectations for an increase of approximately 1.0%. The pending home sales figure came as a surprise given the strength of existing and new home sales figures for December. The pending home sales index declined across all regions of the country. (Source: Bloomberg)
What it Means for Mortgage Borrowers
Despite positive readings from the existing and new home sales reports for December and a strong start to 2015 for mortgage applications, the December pending homes sales figure is a sign that the real estate and mortgage market remains relatively inconsistent in its trajectory. With low interest rates and an improving economy, analysts had expected stronger pending home sales results to close out 2014. Although interest rates remain low, down payment requirements and tight credit standards remain significant obstacles for home buyers to overcome, especially for first-time home buyers. Government initiatives introduced in January designed to ease the down payment requirement could benefit home buyers although it may take some time for these initiatives to impact the real estate and mortgage markets. First-time home buyers should review our First-Time Home Buyer Cheat Sheet to prepare for the mortgage process and keep tabs on interest rates for lenders in their area using our INTEREST RATES feature.
The FREEandCLEAR Mortgage Expert