Posted August 28, 2013Tweet
The U.S. housing market continues to show strength.
With home values still off last decade's peak by more than 10%, and with mortgage rates near historical lows, today's buyers have had plenty of chances to buy homes "on the cheap". Going forward, however, those chances may be fewer. Home inventories are scarce in many U.S. cities, and demand is outpacing supply.
Looking to buy a home in 2013 or 2014? Consider moving up your time frame.
Each month, the National Association of REALTORS® publishes its Pending Home Sales Index (PHSI), a forward-looking housing market indicator.
The Pending Home Sales Index is meant to measure the number of homes which are newly under contract. Data has shown that the number of homes newly under contract positively correlates to the number of closed sales two months into the future, which makes the Pending Home Sales Index a reasonable proxy for the future health of U.S. housing.
When the Pending Home Sales Index rises, another National Association of REALTORS® report -- the Existing Home Sales report -- tends to rises too, but on a 60-day delay. Similarly, when the Pending Home Sales Index shows a retreat in homes under contract, two months later, the Existing Home Sales report often drops, too.
It's this predictive quality which makes the Pending Home Sales Index unique.
Unlike other widely-cited home valuation trackers such as the Case-Shiller Index and the FHFA's Home Price Index; and home sale trackers such as the government's monthly New Home Sales report which cover what has already happened in housing, the Pending Home Sales Index tells us what will happen in housing.
80% of homes under contract close within 60 days. Most of the rest close in months 3 and 4. The Pending Home Sales Index correlates to future closing.
The National Association of REALTORS® shows the July Pending Home Sales Index at 109.5, a slight decrease from the month prior and the second straight month for which the index fell.
However, this doesn't mean the reading is weak. Any time that the Pending Home Sales Index beats 100, it's significant. "100" is the index benchmark value which correlates to the housing market's performance in 2001, the year the index launched.
2001 was a "good year" for housing. When the Pending Home Sales Index beats 100, then, it suggests that today's housing market is performing better than the one from 2001.
It's been 15 months since the Pending Home Sales Index fell short of 100.
Today's buyers have undoubtedly experienced the effects of an improving market. Homes are selling rapidly at prices close to, or above, their original listing price; multiple-offer situations are more common; and sellers have negotiation leverage over buyers in many U.S. markets.
Planning to buy a home this year or in 2014? Despite rising home prices and homeownership costs, the market remains ripe for buyers.
Purchasing power is near all-time highs and low- and no-downpayment mortgages are readily available from U.S. lenders. One such program -- the Conventional 97 -- allows for a 3% downpayment and a downpayment gift, and is available in all 50 states. FHA loans are popular, too.
Checking your budget against today's mortgage rates. See for how much home you'll qualify.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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