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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 and mortgage markets. 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 December 2014 showed that pending home sales in November increased 0.8%, above analyst expectations for an increase of 0.5%. The November pending home sales figure rebounded as compared to the October pending home sales index report which showed a 1.2% decline on a month-over-month basis (as compared to September 2014). Although relatively small, the improvement in the pending home sales market is a positive sign for home purchase mortgage application activity in the coming months. Against the backdrop of a sluggish national real estate market, the increase in the pending home sales index can be attributed to lower interest rates and stabilizing housing prices. (Source: Econoday)
What it Means for Mortgage Borrowers
The uptick in the pending home sales market is a positive sign for the mortgage market although the relatively small magnitude of the increase suggests there is plenty of room for improvement. Low interest rates, stabilizing home prices and a gradually improving economy should boost the real estate and mortgage markets as we head into 2015 although increased participation from first-time home buyers will be a key factor in determining if these markets really take-off. First-time home buyers should review our First-Time Home Buyer Cheat Sheet to prepare for the mortgage process and use our Mortgage Selector calculator to determine what size mortgage they can afford and what mortgage program is right for them.
The FREEandCLEAR Mortgage Expert