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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.
Pending home sales increased for the fifth consecutive month and hit a nine year high with the pending home sales index for May rising 0.9% on a month-over-month basis (as compared to April 2015). The increase in the index in May exceeded the high end of analyst expectations and builds upon a 2.7% increase in the index reported for April. The increase in the pending home sales index was driven by gains in the West and Northeast as improved weather and strong demand boosted activity in those regions. The South and Midwest regions showed small month-over-month declines but both regions are up significantly on a year-over-year basis in 2015. Although the rate of growth in the index declined as compared to the April figure, the index reached its highest level since 2006, near the peak of the housing boom. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The robust pending home sales index report for June follows strong reports for both Existing and New Home Sales to show strength in the housing and mortgage markets across almost all indicators. The increase in the pending home sales index bodes well for the mortgage market as pending home sales typically require mortgage financing to become closed transactions. The increase in interest rates over the past couple of months does not appear to be hindering home buyer demand and in fact may actually be pushing buyers into the market before rates move any higher. Additionally, rising rents across the country are make home ownership financially more attractive on a relative basis. You can use our Rent Payment Mortgage Affordability Calculator to determine how your monthly rent payment translates into a mortgage amount. Additionally, prospective borrowers should use our INTEREST RATES feature to compare rates and fees for lenders in your area to select the mortgage that is right for you.
The FREEandCLEAR Mortgage Expert