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.
A continued bright spot for the real estate and mortgage markets, the pending home sales index report for March 2015 showed that pending home sales in February increased 3.1% on a month-over-month basis (as compared to January 2015). The increase in the index follows a 1.2% increase in the index reported for January and significantly exceeded analyst expectations. The increase in the pending home sales index was driven by gains in the West and Midwest, which more than offset small decreases in the Northeast and the South, the nation’s largest housing market. The pending home sales index is showing some meaningful momentum, increasing in consecutive months for the first time in almost a year. Additionally, in another positive from the report, market participation by first-time home buyers inched up to 29% from 28%, increasing for the first time since November 2014. The March pending home sales index report is viewed as another positive for the mortgage and real estate markets following last week’s robust new home sales report. (Source: Bloomberg)
What it Means for Mortgage Borrowers
Continued momentum in the pending existing home sales market should result in an uptick in mortgage borrowing activity. The favorable pending home sales report and recent strong new home sales report demonstrate that borrowers are taking advantage of low interest rates to buy homes. The small increase in market participation by first-time home buyers is a welcome development although that figure remains near a multi-decade low. First-time home buyers will have to jump into the market in force for the housing and mortgage markets to really take off. With the Spring home buying season fast-approaching, first-time and experienced home buyers should review our comprehensive downloadable mortgage process guide for money and time-saving tips on the mortgage process. Additionally, check out the INTEREST RATES feature on FREEandCLEAR to compare mortgage rates and contact lenders in your area to get pre-approved for your mortgage before you start the home search process.
The FREEandCLEAR Mortgage Expert