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 October 2014 showed that pending home sales in September increased .3% on a month-over-month basis (as compared to August 2014) and increased 1.0% on a year-over-year basis (as compared to September 2013). The modest increase in the index reverses the small decline in the index reported in the September report. Lower interest rates and cooling housing prices could be having a positive impact on home sales, which have been inconsistent throughout 2014. The uptick in the pending home sales report for October combined with positive recent reports for existing home sales and new home sales suggests momentum in the housing market is gradually building as 2014 comes to a close. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The October pending homes sales index report should translate into an increase in existing home sales over the next several months. Prospective home buyers appear to be slowly entering the market due to more attractive interest rates and home prices on both new and existing homes. Although the increase in the October pending home sales index report was relatively small, it is a positive sign for the housing and mortgage markets after months of uncertainty. With market conditions gradually improving, prospective home buyers can use the FREEandCLEAR Mortgage Qualification Calculator to determine what size mortgage they can afford and our COMPARE LENDERS feature to monitor interest rates to determine if now is the right time for them to buy a home.
The FREEandCLEAR Mortgage Expert