31Dec2014
Dan Green
Author
Dan Green
Filed Under
Real Estate Sales

NAR’s Pending Home Sales Index Projects A Strong 2014 Housing Market, Rising Prices For Buyers

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Pending Home Sales Index foreshadows a lift in Existing Home Sales for 2014

The U.S. housing market recovery continues. From San Jose, California; to Detroit, Michigan; to Dade County, Florida, homes are going into contract at a furious unequaled since the early-part of last decade.

Furthermore, rising mortgage rates appear to have made just a small impact on home sales. Despite a full percentage point increase in mortgage rates from last year, the number of home sale agreements eased only slightly.

Buyers should expect a strong start to 2014, and rising home prices in many U.S. markets.

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Pending Home Sales Index : A Different Indicator Type

The Pending Home Sales Index (PHSI) is a monthly report, published by the National Association of REALTORS® (NAR). It measures homes under contract, and not yet closed.

The Pending Home Sales Index is a forward-looking housing market indicator and, in this way, it is different from the major housing market metrics.

Most housing market metrics reveal how the housing market performed during some historical period -- whether one month or one year ago, as two examples. What makes the Pending Home Sales Index unique is that, in measuring the past, it attempts to predict how housing will perform in the future.

Because 80% of homes under contract close within 60 days, and many of the rest close within 120 days, there is a high correlation between the monthly Pending Home Sales Index and the Existing Home Sales report released two months later.

The Existing Home Sales report measures closed home sales. It's widely-used housing market metric. Based on recent Pending Home Sales Index data, then, we can expect Existing Home Sales to retreat into 2014.

According to the National Association of REALTORS®, the November Pending Home Sales Index rose 0.2 percent from the month prior to reach 101.7.

Furthermore, the Pending Home Sales Index logged its 19th straight month above the benchmark "100" value which represents the housing market as it existed in 2001, the year in which the Pending Home Sales Index was first launched. 2001 was considered a good year for the U.S. housing market.

By comparison, then, 2013 can be considered a great year. The Pending Home Sales Index has averaged 105.9.

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Expect Fewer Home Sales, Higher Home Prices

The Pending Home Sales Index rose this past October after falling for five straight months. It's no surprise, then, that the highly-correlated Existing Home Sales report has shown fewer home resales lately, too.

Given the link between "homes under contract" and "homes closed", home buyers and sellers should expect to see fewer home sales on December's Existing Home Sales report, and a boost into January 2014.

November's Existing Home Sales was right on target at 4.9 million. Here's what to expect for December and January :

  • December 2013 : 4.84 million homes sold on seasonally-adjusted, annualized basis
  • January 2014 : 4.85 million homes sold on seasonally-adjusted, annualized basis

The number of homes sold nationwide fails to correlate with specific home sales prices, though. With home supply still scarce and the buying pace remaining frenetic, the complete U.S. inventory is expected to sell-out in just 5.1 months.

Supply of less than 6.0 months suggests a "Seller's Market" and home supply has been below this benchmark level going on 15 months. It's among the reasons why home values are rising, in general.

As compared to last year, home values are up close to 9 percent.

The good news for today's home buyers is that there are a bevy of low- and no-downpayment mortgage programs to complement the existing 20% down programs via Fannie Mae and Freddie Mac.

The FHA offers a 3.5% downpayment program, and the VA and the USDA both offer 100 percent, no-money-down programs for eligible U.S. home buyers. Get pre-approved today to see how much home you can afford. 

Mortgage Pre-Approvals And Today's Rates

The November 2013 Pending Home Sales Index is a reminder of the U.S. housing market's strength. Home sales, though lower than during this year's peak, are expected to report strong for December, and momentum is expected to carry into 2014.

Among the wildcards for housing is the future of mortgage rates. Higher rates may not slow the pace of purchases, but it will make homes more expensive to purchase and to own. Savvy buyers will buy homes sooner rather than later.

It also helps to be aware of the mortgage market and how it can affect your budget. See today's rates and get yourself pre-approved for a loan. Rates are available online. There's no cost and no obligation.

Click here to get pre-approved with a mortgage rate.

About the Author

Dan Green is a mortgage market expert, providing over 10 years of direct-to-consumer advice. NMLS #1019791. You can also connect with Dan on Twitter and on Google+.

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