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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. For example, the pending home sales index report released in September contains figures for August.
The pending home sales index report for September 2014 showed that pending home sales in August declined 1.0% on a month-over-month basis (as compared to July 2014) and declined 2.2% on a year-over-year basis (as compared to August 2013). The lack of affordable housing supply, reluctance of first-time home buyers to enter the housing market and a focus on new homes as opposed to existing homes continues to hold back the existing home sales market as reflected by the index figures for August. The pending home sales index figures for August are consistent with the existing home sales report for August, which we also covered on the FREEandCLEAR Mortgage Expert Blog, which showed that existing home sales in August decreased 1.8% on a month-over-month basis and decreased 5.3% on a year-over-year basis. (Source: Bloomberg)
What it Means for Mortgage Borrowers
The pending homes sales index report suggests that existing home sales will continue to be flat for the next several months which should result in flat mortgage activity as well. This is actually positive news for borrowers as lenders should be more aggressive in pursuing new mortgage business and more willing to negotiate a lower interest rate or closing costs. Additionally, with relatively low interest rates and the existing housing market showing signs of slowing down (in certain geographies), home sellers may be more open to negotiate on price which could lead to more affordable housing options for buyers. Use our Mortgage Qualification Calculator to determine what size mortgage you qualify for and our COMPARE LENDERS feature to monitor interest rates so that you can take advantage of increasingly favorable market conditions for home buyers.
The FREEandCLEAR Mortgage Expert